Costco and Dell are the classic examples of businesses where somebody else pays for the inventory: Costco by selling stock faster than it pays for it, Dell by not building until the customer had ordered.

Costco: the suppliers own the shelves

Costco’s annual report says it plainly: it often sells “inventory before we are required to pay for it” Filed. Its balance sheet shows what that means.

FiledCostco Wholesale, Form 10-K for the fiscal year ended August 31, 2025, consolidated balance sheet and statement of income.

Accounts payable was 109% of inventory: Costco owed suppliers more than the value of everything in its warehouses. On average balances, inventory turned in about 28 days, payables in about 30 and receivables in about 4, a cycle of roughly two days Derived.

Two days is close to zero, not deeply negative. The negative number people quote for Costco is its operating working capital: excluding cash and investments, current assets of about $23.1 billion against current liabilities of $37.1 billion, a gap of about $14 billion Derived. Suppliers, employees’ accrued pay and members fund it; members had paid $2.85 billion of fees in advance Filed.

What a DTC brand can copy is the logic. Turn fast on a narrow range: supplier terms only fund stock that sells within them, so fewer products, deeper, is a cash decision. Charge for the relationship up front: a membership fee is cash before any product moves; for a brand that’s a prepaid plan or a gift card (chapter 8).

Dell: build it after they pay

FiledDell Inc., Form 10-Q for the quarter ended July 29, 2005 (minus 38 days at that date). Dell’s investor ratio data, not a filing, show minus 36 days in fiscal 2012.

Four days of inventory. Dell waited about a month to be paid, a sign of how much it invoiced business customers, and it still ran a cycle 37 days below zero because it paid suppliers in 73. Its annual report for that year credited its “efficient direct business model and cash conversion cycle” with operating cash flows “that typically exceed net income” Filed.

Inventory mattered to Dell because its parts lost value every week. In 1998 Michael Dell compared his 12 days of stock with a competitor’s 30 plus 40 more in retail channels: “In 58 days, the cost of materials will decline about 6 percent” Reported. Apparel ages by season and supplements by expiry date, so every shelf day costs a brand markdowns as well as cash.

Two ideas carry over. Sell before you make: build-to-order is the extreme version of a preorder, and you don’t need factories to sell a launch before the purchase order goes out (chapter 6). Make the cycle everyone’s number: the buyer should know what an extra month of stock costs, and the marketer that a launch sold in advance is cash, not just revenue.

Costco sells faster than it pays. Dell was paid before it built. Both are timing, not margin.

Do this

• Pick one idea from each. From Costco: which product families could you cut so that stock turns within your supplier terms? From Dell: which launch or restock this year could be sold before the purchase order is placed? Write both down with an owner.