What Is Costco's Inventory Time?

Costco buys the majority of its merchandise directly from manufacturers for shipment either directly to Costco’s selling warehouses or to a consolidation point where various shipments are combined so as to minimize freight and handling costs. As a result, Costco eliminates many of the costs associated with multiple step distribution channels, which include purchasing from distributors as opposed to manufacturers, use of central receiving, storing and distributing warehouses, and storage of merchandise in locations off the sales floors. (1)

turning over inventory, the company is often able to sell their products and pay suppliers before the invoice is due, even when the company pays early to benefit from early payment discounts. This frees up capital which allows Costco to finance new inventory purchases with supplier payment terms. Costco then passes

In the past few years, they have experienced a significant increase in inventory days. Not having attractive inventory leads to a decrease in sales and an increase in discounts and write offs leading to further decreases in EBITDA Margins. In 2009, the inventory turnover took 215 days. This is significantly above Le Chateaus competitors, for example Reitman’s inventory took only 72 days (Annual Report 2010). This means it takes Le Chateaus three times as long to sell inventory compared to their competitors. To make matters worse, this trend has been exacerbated in recent years. Le Chateau’s turnover has ballooned to a staggering 341 days while Reitman’s has kept inventory turnover stable at only 76 days.

Retail super-giant Wal-Mart has fought its way to becoming the world's largest company. Wal-Mart’s legendary supply chain technology has allowed them to break the three-day barrier that some economists in the eighties felt that it was unbreakable. In other words, Wal-Mart is often able to replenish items on the Wal-Mart shelf in less than three days – not from the central warehouse to the shelf, but from the manufacturer to the shelf. With quick and reliable 2-day turn around, Wal-Mart is able to maintain lower levels of inventory and still meet customer demand. These lower inventory levels result in either a reduced floor plan with lower carrying costs and lower interest expense – or a greater diversity of products on the store shelves.

When it comes to outbound logistics Costco's task is delivery, invoicing, handling finished goods and orders. The way Costco handles all theses various tasks is mostly through assorted distribution and transporting methods. Costco can accomplish their outbound logistics by having a well thought out inventory method. This inventory method lets Costco markets hold up to two full weeks of supplies. Usually the supplies are

Costco’s inventory management strategy focuses on three main points: (a) point-of-sales system (POS), (b) vendor managed inventory and (c) low volume of stock keeping units. Costco takes aid from innovative inventory system that provides real time inventory information called Collaborative Retail Exchange (CRX). The system monitors and re-orders at the optimum inventory as part of the continuous re-order system. The CRX system analyses the sales for the previous weeks and inventory level which acts as information to the suppliers. Costco Wholesale follows a Bulk-buying strategy. It aims at selling products in large volume and comparatively low prices. The company also follows lower number of stock keeping units (SKU’s), an average of ~4,000

Inventory levels over the past 4 years have remained on an increasingly consistent track as their revenue has risen. According to Best Buy (2010), this rise in revenue and assets is partly due to the fact that they enter new markets and open new stores across the world. The latest opportunities that they have come across include new stores in Europe and other areas overseas. This is new territory for Best Buy but has been a successful venture based on their flexibility with their inventory systems that they have in place. The following table presents the last five year financial highlights according to the Financial Statements and Supplementary Data of Annual Report on Form 10-K. (Investor Relations, 2010) Five-Year Financial Highlights

Company is facing a challenge of potentially higher inventory costs. Rising prices may further result in changes in customer behavior and preferences.

This results in a high volume of sales from a single vendor, allowing further reductions in price, and reducing marketing costs. If Costco management feels the wholesale price of a product is too high, they will refuse to stock the product.

This set of data belongs to the online retailer industry. The most significant categories that helped with our decision was the low inventory for a retail business and the relatively high inventory turnover. The reasoning behind the high inventory turnover was because the goods were allowed to sit in storage until sold because of the online aspect of the business. We were also able

It’s a very appealing business model because what it does for Costco is it enables them to secure vendor purchasing power in volume. With their large warehouse facilities this enables them to distribute products on their floors efficiently while being able to store any leftover in house. This increases the availability of turnover. Also, with their large warehouses and lack of design beyond what’s necessity, it enables them to provide customer service without over investing in design.

Thus, Costco has positively increased the liquidity of its assets and increased its inventory turnover over this five year period.

Costco is the best cost provider in the wholesale club category and the strategy is associated with Costco’s capabilities and resources, which includes; a streamlined supply chain, good supplier relationships, purchasing power, high sales volumes, quick inventory turnover, and excellent customer service. The three vital components of the company strategy are low pricing, limited product selection and high-end products acquired in closeouts and liquidations. While Costco strives to beat the competitors pricing, it also delivers exceptional value in its high-end offerings and customer service, giving consumers more for their money. Given its customers are the most affluent of all the warehouse clubs, with average incomes around $75,000 and this strategy works well for Costco. However, these customers are conscious not only about money but also value for the product, this fact is supported by the members who choose for executive

Costco’s CEO, Jim Sinegal, quoted, “Costco is able to offer lower prices and better values by eliminating virtually all the frills and costs historically associated with conventional wholesalers and retailers, including salespeople, fancy buildings, delivery, billing, and accounts receivable. We run a tight operation with extremely low overhead which enables us to pass on dramatic savings to our members”.2 They stored the inventory on racks above the items being sold in the warehouse. That reduced their labor cost and saved them a lot time on handling and stocking. They treat their manager as enterpeneur and allows them to decide what item should be sold in their store. They odered most of the inventory directly from the manufactures. It either came directly to the store or went to their distribution center called crossdocking depots. The point of these deposts were to reduce the transportation cost by making sure all truck are full when they come the store.

The strategy for Costco was that the company continued to buy merchandise at volume discounts from manufacturers, rather than distributors. The stock is usually shipped directly to selling warehouses to minimize freight costs. Stocked items are placed directly onto the selling floor or are still stacked on their pallets, reducing handling and stocking labor. The number of sales and service employees is also minimal, with a large percentage of the employees holding part-time status. Warehouses are almost entirely self-service, from finding and buying items, to loading them into a customer's vehicle. (Miller, 2011)