Essay About Costco Store And Special Arrangement

Rising Costs in Supply Chain
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One morning, a Costco store in Los Angeles began
running a little low on size-one and size-two Huggies.
Crisis loomed.
So what did Costco managers do? Nothing. They
didn’t have to, thanks to a special arrangement with
Kimberly-Clark Corp., the company that makes the
diapers.
Under this deal, responsibility for replenishing
stock falls on the manufacturer, not Costco. In return,
the big retailer shares detailed information about
individual stores’ sales. So, long before babies in
Los Angeles would ever notice it, diaper dearth was
averted by a Kimberly-Clark data analyst working at
a computer hundreds of miles away in Neenah, Wis.
“When they were doing their own ordering, they
didn’t have as good a grasp” of inventory, says the
Kimberly-Clark data analyst, Michael Fafnis. Now,
a special computer link with Costco allows Mr. Fafnis
to make snap decisions about where to ship more
Huggies and other Kimberly-Clark products.
Just a few years ago, the sharing of such data
between a major retailer and a key supplier would
have been unthinkable. But the arrangement between
Costco Wholesale Corp. and Kimberly-Clark underscores
a sweeping change in American retailing.
Across the country, powerful retailers fromWal-Mart
Stores Inc. to Target Corp. to J.C. Penney Co. are
pressuring their suppliers to take a more active role
in shepherding products from the factory to store
shelves.
CHANGING SIZES
In some cases, that means requiring suppliers to shoulder
the costs of warehousing excess merchandise. In
others, it means pushing suppliers to change product
or package sizes. In the case of Costco and Kimberly-
Clark, whose coordinated plan is officially called
“vendor-managed inventory,” Kimberly-Clark oversees
and pays for everything involved with managing
Costco’s inventory except the actual shelf-stockers in
store aisles.
Whatever the arrangement and the terminology, the
major focus for these big retailers is the same: Cutting
costs along the so-called supply chain, which comprises
every step from lumber mill to store shelf. The
assumption is that suppliers themselves are in the best
position to spot inefficiencies and fix them.
For consumers, it all translates to lower prices at
the cash register. Indeed, big companies’ increasing
focus on the supply chain is one reason U.S. prices for
general merchandise—goods from laundry detergent
to wool sweaters—fell 1.5 percent in 1998 and again
last year and are falling at the same rate this year,
according to Richard Berner, chief U.S. economist at
Morgan Stanley DeanWitter. “Supply-chain management
has had a major impact,” says Mr. Berner, who
compiled his analysis from government data.
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There is also a potential downside for consumers: