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Inventory control process
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Reflect on how COSTCO utilizes supply chain and logistics to differentiate in the market
place
Costco's business model shows how a corporation can differentiate its services with
effective supply chains and logistics. First, Costco differentiates themselves through SKUs
(SKU). SKUs require work to order, manage, handle, and move in supply chain and logistics.
Costco locations average 3,000 SKUs, including seasonal and typical items. Low SKUs allow
chains to hire a few people with great skills to manage them (Millstein et al., 2018). Costco's
supply chains and logistics are efficient, giving them a market advantage. Costco has a no-touch
policy. Most stock products should be on complete pallets. This differentiates Costco's supply
chain and logistics because commodities only go from warehouses to customers. These practices
by Costco differentiate them in the market place.
How they are different than Sam’s Club or other competitors?
In terms of their inventory and the rate at which they turn over their inventory, Costco
stands apart from other competitors like Sam's Club. The majority of large merchants have
challenges with the disappearance and reduction of their inventory. However, because Costco is
able to manage the manner in which merchandise enters and leaves their warehouses, they have a
lower rate of loss than other retailers. This sets them apart from their competitors. Additionally,
because of the effective structure of Costco's supply chain, the company's cash flow is also
effective, which ensures that the company's suppliers are paid before the payment is scheduled to
be made. This sets Costco apart from other major shops of comparable size.
This Week
Walmart and the ABC process
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The retail industry accounts for more than 40% of the U.S. GDP. Walmart owns a
substantial portion of this transformational sector. Walmart has led the industry for decades by
offering the greatest products at cheap pricing (Lin, 2019). Walmart's success hinges on its
ability to manage five external market forces: customers, substitutes, competition, new entrants,
and buyers and suppliers. However, millennial and new consumer behaviors have increased.
Walmart needs an effective organizational plan to sustain its position. Walmart can change its
operations using the ABC approach. The ABC process detects all operations and costs each one.
Overview of the ABC process
Walmart's inventory management systems could be improved using the ABC process, which
has the potential to be an effective method. This procedure would be extremely important in
ensuring that Walmart achieves its desired position in the retail industry on both the domestic
and international market (Huo & Rui, 2021). In order to provide an overview of the ABC
process, which is used to manage the organization's inventory, the inventory will first be divided
into the following categories:
Category A: the first category entails inventories on its stores that are on sale and
operation equipment’s. In this category, inventory and items are kept on constant
observation and checks.
Category B: these are inventories that are utilized but do not undergo substantial checks
recording
Category C: this category entails inventory which undergoes minimal checks as a result
of their minimal effect on the performance of the company.
Why the ABC process would be an effective Solution to Walmart,
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Accurate Demand Forecasting
Inventory planners at Walmart are able to forecast the demand for certain products by
using the ABC process, and they can then manage their inventory in accordance with that
demand. This realization reduces the expenses of transporting outmoded commodities, which
results in an improvement in the management of your supply chain.
Efficient Control of Valuable Inventory
A-class inventory is crucial to the success of a lot of different businesses. Walmart will
be able to identify certain items in real-time thanks to the ABC method, which will also allow
them to monitor demand for them and ensure that they are never out of supply. The company can
improve its chances of being successful by allocating resources to high-priority inventory. This
will put the odds in the company's favor.
Pricing Strategically
The ABC method has the potential to optimize the pricing approach for products that
deliver the most value to the organization. When it is determined which of the company's items
are in particularly high demand, the price of those products may be raised, which may have a
considerable effect on the company's profitability.
Limitations of the ABC process on Walmart
Regular Oversight is needed
In order for the business to reap the full benefits of the ABC process, the inventory needs
to be analyzed on a regular basis to check that it still contains high-priority products as required.
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In that case, the corporation runs the danger of squandering resources on things with a lower
value. Businesses may experience hardship as a result of the acquisition and processing of data.
Lacks Precision
The ABC method has the potential to overvalue luxury goods, which have a lower selling
rate but a greater profit margin, in favor of regularly goods bought that bring customers through
the door. ABC analysis has the potential to overlook demand fluctuations for seasonal items or
new items that have not yet accumulated a significant amount of sales volume data.
Steps for adopting the ABC Process
Classifying Inventory
The kind of business and the goals of that business determine how the inventory should
be categorized. It is important that the classification correspond with the inventory that is being
held as well as the way the business is managed (Eraslan & Ic, 2020). Any metric that you
choose should measure the value of the consumption of your inventory over some period of time.
The total sales, the expenses of purchases, and the costs of holding are the standard measures.
Following the completion of the % calculations for each item, the items are then sorted into the
A, B, and C categories respectively.
Create Rules for Inventory Classes
The many inventory categories, such as A, B, and C, each generate their own set of
rules that dictate how they should be classified. For instance, class A inventory should never
experience a stock out and should always maintain a specific turnover threshold. Then it is OK to
have stockouts of items classified as C.
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Monitor Opportunities to Change Classes
The classification mix will shift as the company expands and adds more things to its
inventory as time goes on. A sustained application of the ABC analysis will lead to the creation
of patterns that indicate which inventory is most crucial to manage and which inventory is least
crucial to manage. Cash flow problems will soon become a thing of the past if the company
ensures that it always has the appropriate inventory mix. This will allow the company to perform
more efficiently.
Recommend the best practices for using ABC process
Keep Inventory Classification Simple
Keeping the classifications of ABC analysis as straightforward as possible is highly
recommended in order to achieve the streamlined management of inventories that is the goal.
The different corporate teams ought to have a simple time determining which products
immediately belong to which categories of goods (Beheshti et al., 2020). Examples of common
classification strategies include grouping items according to their price or the number of times
they are sold.
Set Labor Levels According to the Classification
It is important that each categorization be given its own labor level, which may be
thought of as the total number of hours spent working on that specific inventory class. It just
makes sense that the level of labor that should be allocated to a categorization should increase in
proportion to the value or impact that it has on the company.
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Walmart can effectively estimate the worth of its products by conducting an ABC
process as described. It is a straightforward method that assists in the management of huge
quantities of inventory and the determination of how resources should be allotted to each
category in order to realize the greatest amount of profit.
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References
Beheshti, H. M., Clelland, I. J., & Harrington, K. V. (2020). Competitive advantage with vendor
managed inventory. Journal of Promotion Management, 26(6), 836-854.
Eraslan, E., & Ic, Y. T. (2020). An improved decision support system for ABC inventory
classification. Evolving Systems, 11(4), 683-696.
Huo, H., & Rui, Y. (2021, September). The Assessment of Costco Management Strategy in
Chinese Market Based on Supply Chain. In 2021 International Conference on E-
Commerce and E-Management (ICECEM) (pp. 451-455). IEEE.
Lin, R. (2019). The importance of successful inventory management to enterprises: A case study
of Wal-Mart. In 2019 International Conference on Management, Finance and Social
Sciences Research (MFSSR 2019). London: Francis Academic Press.
Millstein, M. A., Yang, L., & Li, H. (2018). Optimizing ABC inventory grouping
decisions. International Journal of Production Economics, 148, 71-80.