SCM costco presentation about Costco PDF

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Summary

This is a draft and script about the Costco company needed for course SCM 2160, a general information about the company...

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Costco’s inventory management ---inventory control systems  periodic (P) and continuous periodic systems (Q) ---demand: independent demand/ dependent demand Independent demand is demand for a finished product, such as a computer, a bicycle, or a pizza. Dependent demand, on the other hand, is demand for component parts or subassemblies. For example, this would be the microchips in the computer, the wheels on the bicycle, or the cheese on the pizza

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.

---lot-sizing rules  fixed order quantity/ periodic order quantity/ lot-4-lot (L4L) Why Costco is different? ---selective stocking Costco operates 785 warehouses; each warehouse is about 146,000 square feet on average Company seeks to limit the number of available stocks, keeping up to 3,700 units in the warehouse, as it believes in higher volume driving a higher profit The company operates a very lean operating cost model, In keeping with its lean and

mean cost model, the lower number of items at Costco ensures that the fastest-selling items are displayed to optimize retail space. ---combine it with the resource planning system, Costco decides which supplier has access to their private CRX data. CRX system allows Costco to use their continuous review system efficiently as without this system, each warehouse inventory manager would be forced to manually count their inventory on hand and input it in the system They use the Last-in, first-out (LIFO) METHOD

CRX System Data

The CRX system gives certain suppliers access to information such as how many items were sold in the last week and current inventory levels. These suppliers must be approved by Costco before granted access to this private data. IRI offers the service to those suppliers of managing and notifying suppliers that inventories are dangerously close to the reorder point and once they point is actually reached. This system is innovative because its puts inventory management mostly in the hands of the suppliers, whose job is to ensure Costco has sufficient inventory to meet market demand.

Suppliers are truly in control of their own inventory. Once an item is scanned and a sale has been completed, the system is automatically updated and inventory managers are notified if inventory levels are nearing or have reached the reorder point. The main goal of the CRX was to improve communication between Costco as a company and its suppliers. Costco decides which suppliers are allowed access to the private CRX data. Efficiency of CRX The CRX system allows Costco to use this continuous review system efficiently because without the system, each warehouse inventory manager would be forced to manually count their inventory on hand and input it into the system. This method would be extremely inefficient. The CRX system is undoubtedly one of the many reasons Costco improves its sales figures quarter after quarter. The CRX system prevents downtime and overstocking inventory. This is important because total operating costs are high when inventory is overstocked, as well as Costco losing otherwise earned interested through having a large amount of money tied up in unnecessary assets.

Before I get into Costco’s inventory control system, I would like to take a couple seconds to talk about how Costco buys their merchandise. Costco buys majority of their inventory from manufacturers and have them shipped to either a depot or directly to their warehouses. The depot received large shipments from the distributors and reallocates them to individual warehouses in less than 24 hours. The is beneficial for them as it maximizes handling efficiencies and lowers receiving costs. Script Now, moving onto to the inventory control system, Costco uses a continuous review system to determine their inventory needs. Before I further dig into the control systems, distinguishing whether an item is subject to dependent demand or independent is important. Costco’s demand is independent which is influenced by the market conditions and is not related to the inventory decisions for any other items held in stock As their demand is uncertain, Costco uses a Q system where they track the remaining inventory of an item every time a sale is made to determine whether it is time to reorder. Costco’s auditors monitor their inventory and sales level daily. Under the Q system, setting a reorder point is important. Since Costco’s demand is uncertain fluctuating, it needs to be forecasted. And in order to do that, Costco uses their record of past sales and estimate their future demand during the lead time, then they combine that demand with a sales cushion, or commonly known as safety stock to find the reorder inventory point. After establishing the reorder point, once the inventory falls below that point, an order will be placed immediately. In 2004, Costco joined forces with Information Resources Inc, (IRI) to create an innovative inventory system technology which will provide them with real-time inventory information, called Collaborative Retail Exchange, (CRX).

This system helps Costco manage staff, track sales and pull reports from anywhere. Under CRX, Costco’s Q system operates efficiently as Costco has given their trusted supplier access to the information regarding their sales and current inventory levels. It informs the suppliers when their inventories are dangerously close to the reorder point and once that point is reached suppliers immediately place the order and ensure that Costco has sufficient inventory to meet the market demand.

To assist with this process, Costco uses a CRX system which allows their Q review system to operate efficiently, as with the CRX system, inventory managers do not need to manually count their inventory and input it in the system.

Information Resources, Inc. (IRI) joined forces in 2004 to create an innovative inventory system technology providing real time inventory information called Collaborative Retail Exchange (CRX). Plus, manage staff, track sales and pull reports from anywhere.

However, of course, Costco only gives access to the CRX system to some of the suppliers in order to access the information, such as how many items were sold in the last week and their current inventory levels. Those suppliers must be approved by Costco before granted the access. IRI offers the service to those suppliers of managing and notifying suppliers that inventories are dangerously close to the reorder point and once they point is actually reached. This system is innovative because its puts inventory management mostly in the hands of the suppliers, whose job is to ensure Costco has sufficient inventory to meet market demand. Once an item is scanned and a sale has been completed, the system is automatically updated and inventory managers are notified if inventory levels are nearing or have reached the reorder point. The main goal of the CRX was to improve communication between Costco as a company and its suppliers. Costco decides which suppliers are allowed access to the private CRX data

They use the Last-in, first-out (LIFO) METHOD  ask a question, do you think it is the best approach, or do you think Costco should hold more inventory

The quantity of the order placed is approximatively the same amount, which is calculated under the Economic order quantity equation, (insert the EOQ equation in the slide) this calculation ensures that Costco has a constant amount of inventory necessary to meet the demand CRX System Data

The CRX system gives certain suppliers access to information such as how many items were sold in the last week and current inventory levels. These suppliers must be approved by Costco before granted access to this private data. IRI offers the service to those suppliers of managing and notifying suppliers that inventories are dangerously close to the reorder point and once they point is actually reached. This system is innovative because its puts inventory management mostly in the hands of the suppliers, whose job is to ensure Costco has sufficient inventory to meet market demand. Suppliers are truly in control of their own inventory. Once an item is scanned and a sale has been completed, the system is automatically updated and inventory managers are notified if inventory levels are nearing or have reached the

reorder point. The main goal of the CRX was to improve communication between Costco as a company and its suppliers. Costco decides which suppliers are allowed access to the private CRX data

http://costcoteam3.blogspot.com/2009/05/costco-inventory-management.html

Costco Wholesale uses the "Q" system to determine its inventory needs. Auditors monitor daily sales and schedule orders that are delivered throughout the entire day from their depot. Early deliveries of baked good and perishables are delivered directly from their original companies. Seasonal or limited items are only ordered once and will not be reordered when inventory is down, Costco does this to entice people to purchase a product as soon as they see it, rather then assuming that it will be available later or can be ordered

http://team4costco.blogspot.com/2008/02/inventory-system.html

Information Resources, Inc. (IRI) joined forces in 2004 to create an innovative inventory system technology providing real time inventory information called Collaborative Retail Exchange (CRX). Plus, manage staff, track sales and pull reports from anywhere. Auditors monitor daily sales and schedule orders that are delivered throughout the entire day from their depot. All U.S. merchandise inventories use the last-in, first-out (LIFO) method, and all foreign operations use the first-in, first-out (FIFO) method...