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Analysis of Business Strategy and Supply Chain Management at Costco

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Table of contents

  1. How Does Costco Continually Ensure the Lowest Price to Consumers
  2. What Makes Costco’s Supply Chain Effective
  3. How Does the Supply Chain Contribute to the Execution of the Business Strategy
  4. Conclusion

How Does Costco Continually Ensure the Lowest Price to Consumers

Costco follows a cost leadership strategy to sell products at low prices to its consumers. Costco’s Strategies are low prices, limited product line which enables treasure hunt shopping environment for its consumers. Costco focuses on selling high quality products while at low prices. It does not vend goods with high fees. Costco guarantees inventory effectiveness by using one store for retailing and wholesaling. It demonstrates products in their pallets, which reduces their inventory costs. Costco’s can manage and reduce the unproductive inventory by reducing pack sizes. Costco’s general work expenses are additionally moderately low. The worker necessity at stores is lower because of self-administration model for clients and the lower number of SKUs. Costco stocks ~3,700 items contrasted with the 5,500 items at Sam’s Club (WMT). Costco has the best inventory management system that gives a huge cost savings. Costco’s store hours are shorter contrasted with different retailers. The organization’s distribution centers are open for 70 hours seven days barring service stations. Conversely, their competitor is open longer, for example, Walmart’s. Those supercenters are open 24 hours it seems they make money but at the same time, longer store hours would build costs.

The business strategy which Costco uses is informal promoting, the general stores consistently use misfortune pioneer advertise technique to carry more shoppers to its stores. Then again, Costco, by examination, doesn’t convey week after week flyers. Rather, the organization uses informal promoting to keep similar misfortune pioneers without fail. Costco’s greatest misfortune pioneers in North America right presently are the organization’s rotisserie chicken, sausage and soft drink combo, and gas. It is important to understand the channel of distribution through a couple of selling focuses and store arrangements to arrange the inventory better way that could make impression on the customer and indirectly convince the customer to buy the product. It helps accentuation on minimizing cost expenses.

What Makes Costco’s Supply Chain Effective

Costco’s has the best normal Distribution centers. The company has high deals accomplished with no publicizing (no papers, radio, television or announcements), aside from focusing on advertising when opening another ware-houses. Besides expanding on advertisement Costco works on having a positive verbal exchange of existing customers. For example, Costco selling wine but for selling the best wine they are doing a lot of research going to different countries to find the best wine. As per the video the sourcing expert visits France for finding the best taste wine, so Costco’s is quite smart for understanding their customer’s needs and wants. Costco’s works at offering things for sale to the public at the most minimal expense. As an opposed influence, the customer for expanding makes benefits selling more volume of products at a lower cost and volume purchase will get more discount. The association’s central goal accentuates quality and cost initiative, which are the factors convince the customer purchases more. Costco utilizes a participation just distribution center club plan of action and Costco is one of the country’s main three retailers and the world’s biggest participation distribution center chain, Costco discount Canada works around 80 enrollment stockroom clubs crosswise over Canada. Costco is the best cost supplier in the discount club classification and the system is related to Costco’s capacities and assets. Costco is constantly using the following strategies for keeping low prices for the consumers Gives free samples – People love free samples and this boosts 1/3rd of the sales Costco constantly rotates its products within the warehouse so that customers can have access to seasonal goods. As per the video, Costco does not use any sign in the allies, which hits our psyche that the products are of low quality. It keeps the expensive products at the front as the store branding technique, which lures customers to buy it used a loss leader pricing strategy to bait the customers if not lure the architecture of the Costco stores makes the customer disoriented and makes customers spend more on the membership card makes the customers feel special, so they become a member inadvertently.

The reason behind the effective supply chain is that Costco has a good supplier relationship. Each department has strategic sourcing experts who analyze the market condition and provide enough information to the suppliers. The key to their success is due to maintaining a good rapport with its suppliers and disclosing all the market information to the suppliers. Each strategic sourcing expertise understands the concept well and it is nothing but a systematic and fact-based approach for optimizing an organization’s supply base and improving the overall value proposition. They have a minimal number of brands in each section according to consumer preferences and with a minimal number of suppliers. Two same items might never be placed in the same aisle because Costco wants customers to wander through the store and have a look at other products and buy them the refund policy is very simple and unambiguous and Costco used a loss leader pricing strategy. Jute bags are an alternative to plastics and good for the planet. Costco shows seriousness in being socially responsible and the food facility inside Costco stores helps customers buy more time to shop and Costco offers great deals on gift vouchers.

How Does the Supply Chain Contribute to the Execution of the Business Strategy

Costco can offer lower costs and better qualities by disposing of practically every one of the ruffles and expenses verifiably connected with customary wholesalers and retailers, including salesmen, extravagant structures, conveyance, charging and records of sales. We run a tight task with amazingly low overhead which empowers us to pass on sensational investment funds to our individual customers.

  • The supply chain does the following:
  • Outlines and links a distinct corporate tactic.
  • Recognizes parts that can be empowered by the supply chain.
  • Make even supply chain with the material, capital, and information
  • Multi-level constructs the supply chain to enhance corporate tactics.
  • Line up the inducements in the end.

Costco items and administration costs are extensively low contrasted with their competitors in the market which is less of 35% contrasted with different general stores. for example, Walmart makes a markup cost of 25% while the departmental stores make a markup cost of the half. Costco has a normal markup cost of 11 – 15% which is way lesser contrasted with their rivals in the means Costco’s understand their customer needs and wants very well.

Inventory network choices incorporate conveying a low number of marked items and decreasing items dealing with to lessen overhead expenses. As an organization that manages customer staples, future advancements are not expected to influence. Be that as it may, the influence of data innovation and new improvements in the zone has and will keep on demonstrating to be a critical region of the upper hand. For Costco to keep reinforcing Costco’s situation as one of the market heads in the retail area they should keep up a progression of stock and store network exercises, the influence of progressively complex ERP frameworks, stock administration frameworks, huge cost sparing and economies of scale.

Costco has an outstanding system arranging and finding the right balance between stock, transportation and assembling costs. Costco pursues misfortune pioneer system in their business and it focuses on an administration that is offered at a value that isn’t profitable, but they are using this strategy to attract the new customer and yet it is sold to attract new clients or to pitch extra items and administrations to those clients. Costco comprehends that these are the quick moving items and giving these items at a reasonable cost carries more shoppers to its store which prepares to sell different items. This is the reason that during financial downturn times, Costco has a consistent development rate of 11% over its competitors in the market.

In upstream flow, Costco buys products directly from manufactures which allows it to minimize the marginal costs associated with time consumption and storage. This considerably decreases the number of labors required and inventory costs, as well as the product reaches the consumers at a relatively faster pace.

In the downstream flow, Costco seeks to sell high quality/quantity product with low price to its customers. This effective strategy caused in a sale of $108 Million per location as per Costco CEO. Another supply chain relationship it developed over the years is the membership policy. Costco sells goods to its members which help them to have regular costumers while also is very helpful in determining their purchasing behavior and supply based on the demand of well-defined costumers.

All businesses need to have a contingency plan for the unforeseen risks associated. The common risks that could emerge in wholesale business could be a delivery failure, availability, quality, suppliers’ relations and turnaround time. Costco also possesses a contingency plan which backs up the supply chain in an unforeseen circumstance disturbs the flow of supply e.g. consideration of alternative suppliers, alternative goods, the cross relationship between stores etc.’


Costco Wholesale Business Corporation is very feasible. The business has the fundamental qualities of its store network to exploit openings in the retail business. The company’s low costs and low prices make it one of the strongest wholesale organizations in the competitive market. Costco could work on its online sales and e-commerce to make themselves have stronger relationship with it the suppliers for having sustainable growth in the long run. The organization should attempt to be innovative in the areas of production and should try to work on the areas of supply chain by bringing advance technology and information system.

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