Costco buys the majority of its merchandise from manufacturers and routes it to a cross-docking consolidation point call a depot or directly to its warehouses. The depot receives large shipments from its distributors and then reallocates them to their individual warehouses in less then twenty-four hours. This inventory system maximizes handling efficiencies and lowers receiving costs by eliminating the costs of multiple step distribution channels.
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.
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.
Costco's concept, dubbed arrogantly simple by Chief Financial Officer Richard Galanti, is "limiting the sale of high-quality products to roughly 4,000, which reduces inventory and costs, and selling large quantities to improve margins." Costco Article.