Introduction
The report is based on the supply chain process of world’s renowned retail brand Costco. Supply chain management is related with movement and storage of raw-material, WIP and finished goods from point of origin to the point of consumption. Costco is following a high- volume- low margin approach. Their aim is to sell goods in large volume to the consumers at a cutthroat price. They consider in keeping a restricted stock in its warehouses. The lower number of stock helps sin offering goods at a competitive price enabling Costco to attain higher sales target.
Costco’s Supply chain Process
Low price strategy
One of the factors that benefits margin is the high volumes that enable bulk purchasing and other efficiencies that allow keeping competitive price. Their rival Wal-Mart has leveraged price by negotiating on the advantageous term with the suppliers helping in cost saving on to consumers through lower pricing. Additional efficiencies include buying products straight from the manufacturers. They are subsequently delivering goods to the warehouses through cross-docking techniques. This logistic system helps in optimizing the delivery of shipment with a minimum storage time. This helps in reducing the cost connected with a multi-layer distribution system. Moreover they are sourcing products locally by building relationship with the suppliers. This has helped in serving local customer fondness by additionally reducing cost beside the supply chain.
Contribution of Supply chain in attaining Business Strategy
Inventory Turnover at Costco is higher than that of Target and Wal-Mart. Costco is competent enough to sell limited products at a speedy rate. Inventory at Costco is able to be sold out quickly prior to the due date. Due to this reason, Costco inventories are largely receives backing from the suppliers. This provides a huge competitive advantage over other local and international brands. The undisclosed reason behind Costco’s supply chain is elimination of fingerprints on the product. Costco has figured out a technique that involves minimum fingerprints. It operates mix of distribution facilities in order to complete the overall objectives to derive an effectual supply chain. It purchases majority of goods directly from the manufacturer and way it through a network of cross-docking facilities. The company is reducing the product handling stages between the supply and sales. The warehouse style at Costco works as it works well with the customer’s expectation. Customer satisfaction is maintained by Costco while adhering to the Cost reduction techniques. The optimal packaging technique used by Costco helps in managing product dimensions by reporting material saving of 10 to 25 percent. Costco forte is regarding the unparalleled purity of its operations. The supply chain system at Costco allows the wholesaler to standardized rapid cross docking mechanism. 75 percent of the Costco goods are Cross-docked, whereas distributors delivering the remaining 25 percent of goods like Potato chips, aerated drinks etc directly to the individual stores. Costco has implemented solutions from i2 Technology Inc. This has helped in delivering high level of performance. Costco aims to deliver products in an effective way. Using the solutions Costco is able to leverage the operations through process of an effective network management and collaboration. The company is able to design the strategic model and analyze capabilities to optimize the optimal carriers.
Supplier relation and Risk management
Costco has remained true to the business strategy that allows them to gain success. The purpose of an effective supply chain management process is to provide members with a high quality goods and services at an affordable price. It understands the likes and dislikes of customers to add value to the organization. Costco is concerned with minimizing the risk related to supply chain. The primary focus is to deliver discounted merchandise. Most of the managers and executives are working in an effective way by optimizing the warehouses. They are promoting effective warehousing policies in order to maintain the stock. The up-stream cost drivers allow in easy extraction of material from the manufacturer in order to reduce cost. The managers have a responsibility to manage the activities by maintaining the business on a consistent way. They cannot change the core value as this will affect the overall functioning. Costco is offering Road shows where vendors are allowed to show their good at varioulocation for a particular period of time. The opportunity for small business will provide benefit to both the company and the vendor. This will allow the business organization to deal with effectiveness by managing a regular availability of goods.
This is sure that Costco is taking advantage of a strategic operating model that helps in utilizing economies of scale. The no-frill retail approach helps in providing incredibly low prices to the members. The business model helps in providing value to the customers by high quality goods at industry low price. This is a direct result to the cost cutting operations strategy. This is the reason that helped in aligning between businesses and operating model. Costco is offering significant fewer SKU’s that has helped in enabling a simplified Supply chain logistic. In addition their private brand label helps in adding higher margin at a competitive low price. By eliminating unnecessary sales staff the company is able to limit the store overhead cost. The word of mouth marketing system enables them to reduce investment on advertising. Despite of formidable business in the industry, Costco is able to outperform through is sustainable supply chain model. The organization is able to perform well through achieving desirable goals Inventory at Costco is able to be sold out ahead of the payment due dates to the suppliers. This has helped in managing the total amount of output by reducing the wastage in operations. The overall operating model helps in achieving desirable targets. Moreover, this logistic system allows in optimizing the delivery of shipment to the stores from distribution points with a minimal storage time.
Conclusion
To conclude, Costco is been using the cost efficient practices to culminate the excess cost in operations. They are significantly Elimination of fingerprints on merchandise, staying committed to a business strategy, by upholding core values and culture and allowing small business to develop with them. The essay includes all the business strategy pertaining to supply chain used by Costco in order to gain an effective brand position. As a brand Costco is effectively managing the requisite supply chain operations by eliminating the cost in order to manage regular supply.
