Explain any three benefits of an inventory management system in relation to Costco given that they receive payment from customers before they even have to pay suppliers.
Costco also employs a just-in-time inventory management system, which includes sharing data
directly with many of its largest suppliers. Companies like Kimberly-Clark calculate re-order points
in real time and send new inventory, as needed, to replenish store shelves. Costco also works to
redesign product packaging to squeeze more bulky goods onto trucks and shelves, reducing the
number of orders Costco needs to place with suppliers.
Occasionally, the company leverages its 75 million square feet of warehouse space to reduce
purchasing costs. For example, when Procter & Gamble recently announced a 6% price increase for
its paper goods, Costco bought 258 truckloads of paper towels at the old rate and stored them
using available capacity in its distribution centers and warehouses.
These inventory management techniques have allowed Costco to succeed in tough times while
others have failed. Costco turns its inventory nearly 12 times a year, far more often than other
retailers. With many suppliers agreeing to be paid 30 days after delivery, Costco often sells many
of its goods before it even has to pay for them!
Inventory management is important because materials costs often account for more than 40% of
total costs of manufacturing companies and more than 70% of total costs in merchandising
companies.
Explain any three benefits of an inventory management system in relation to
Costco given that they receive payment from customers before they even have to
pay suppliers.
Note: you are required to paraphrase your understanding of the concept before
you provide at least three application points to Costco.
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