Inventory Control at Costco

Costco Inventory Control:

Costco Wholesale Corporation has continued to use its entrepreneurial ability to constantly reinvent itself. The constant reinvention and ability has made Costco to gain a powerful global competitive advantage. Actually, the company is currently considered as a warehouse king who success continues to be a major threat to Wal-Mart, the largest retailer across the world. Similar to Wal-Mart, Costco's global competitive advantage is attributed to the firm's efficiency in managing inventory and working capital. The company usually reinvents its inventory control and management approximately 13.8 times annually. Given the nature of its business model, Costco tends to sell in bulk quantities because of discounts on certain merchandise and ability to attract bulk buyers like small businesses.

Inventory Management:

Generally, inventory turnaround is a factor that indicates the effectiveness and efficiency of a business or company. Similar to the major companies within its industry, Costco's inventory turnaround shows the effectiveness of the company in managing working capital. This is primarily because inventory represents a huge portion of the firm's working capital. Inventory control usually involves the use of inventory management systems that enable managing and/or locating products through cost-effective means (Gilbert, p.6). While inventory management is a driving force for many companies, some firms struggle with the philosophy since their operations are characterized with high levels of inventory record inaccuracies. This contributes to significant loss of sales, sub-optimal retail performance, and inability to achieve the targeted service levels. During inventory management, policies and strategies used by companies differ depending on the type of product and the anticipated levels of customer service. The strategies used determine the cost of inventory management since the more inventory, the higher the cost. Some of the most commonly incurred costs of inventory management include costs of holding, placing an order, and shortage.

Based on its entrepreneurial attitude, Costco inventory management strategies are characterized with increased demands of the best from suppliers. The firm insists that each of its vendors must enhance their innovation and become more efficient. Generally, sowing entrepreneurial seeds in Costco generates high level of productivity and effectiveness, especially in inventory management (Llopis par, 7). Due to its firm emphasis on the highest quality from vendors and suppliers, Costco has obtained the trust of its members, particularly customers who find the best value products. The provision of the best value to its members has enabled the company to earn trusted reputation that has enabled it to expand. Costco has maintained its core offerings of bulk consumer products while adding customer and business services that are geared towards lessening costs and enhancing member care.

Costco's Strategies for Inventory Control:

One of the strategies used for inventory control by Costco is harmonizing the cost of holding inventory with the expenses of stocking out. The company's inventory management is based on achieving this balance, which contributes to significant benefits for firm including surviving difficult economic times and periods. Through this strategy, Costco shares comprehensive inventory and sales data with its suppliers who are mandated with the task of stocking the product on the firm's shelves. The act of balancing the costs of holding inventory with those of stocking out incorporates vendor-managed strategy. The strategy removes the probability of development of a bullwhip when suppliers are making accurate orders in order to restock. The likelihood of bullwhip during this process is also avoided through the provision of detailed inventory and sales data to suppliers.

Secondly, Costco makes special arrangements with some manufacturers to make suppliers or replenish its stock. Based on these special arrangements, the responsibility of restocking Costco's shelves is on the manufacturer (Nelson & Zimmerman, 2000, p.1). However, the company is mainly responsible for sharing detailed information regarding the sales made by individual stores with the manufacturer. The company adopted this strategy since ordering, which was conventionally used in the firm, did not make it to have a good grasp of inventory. Through these arrangements, suppliers or manufacturers are required to cater for the costs of warehousing extra merchandise. The strategy contributes to significant benefits for the company because Costco saves money on staffing its inventory department and on storage.

To fulfill their responsibilities in inventory management, Costco's suppliers use Collaborative Retail Exchange, which is an innovative inventory system technology that offers real-time inventory information. The system provides the specific suppliers or manufacturers with information about sales made within a pre-determined time period and the current levels of inventory in the company. The system not only ensures that inventory is in the hands of suppliers but also promotes and enhances communication between the company and its suppliers. Collaborative Retail Exchange system is extremely efficient since Costco does not have to manually count its inventory.