Costco is an off-price retailer selling varied selections of fresh produce, groceries, furniture, and clothing in addition to thousands of other SKU’s on their metal racks. Their customers take advantage of close-to wholesale prices, and they pay an annual membership fee. This type of retailer is called a Warehouse club.
Most giant retailers carry over 100,000 SKUs in their stores. Every SKU must be ordered and managed, handled, and moved. On the other hand, Costco averages under 4,000 SKUs per store. This low number of SKUs is an advantage to Costco throughout its supply chain. This advantage means fewer intermediaries are needed, and the smaller number of SKUs can be managed more efficiently by smaller staff. With fewer suppliers and negotiations, there are less complicated logistics that are further helped by Costco’s efficient transfer and storage facilities.
A Full Pallet Approach
Costco’s efficiency is also enhanced because most items are handled on full pallets and are mostly not touched until the customer chooses it off the pallet in the store. This full pallet approach allows the transfer of goods from suppliers to be swift and efficient. This approach has worked so well that Costco has focused on pallet design and packaging to maximize quantities per pallet, thereby reducing handling costs.
Efficiency Equals Success
The success of Costco’s retailing and logistics efficiencies is based on several factors including the low number of SKUs needed to be managed in-store, and the optimized packaging and transfer of goods through a full pallet philosophy. Their inventory is not touched from the time they leave the supplier until the customer pulls it from the rack. This simplified supply chain demonstrates the success of Costco