If you’re in the general business of selling things to people when they want them, we don’t need to tell you how crucial replenishment is. On top of meeting customer demand, managing your replenishment strategy can help you avoid stock outs, reduce the risk of holding onto dead or unsellable inventory, and reduce your running costs (among many other benefits).
For those who are still new to replenishment, its benefits, and its meaning beyond what you might find in the nearest dictionary, you’ve come to the right place.
What is Replenishment?
Inventory (or stock) replenishment is the process of moving products through the supply chain and is a key aspect of inventory management. From the manufacturer to the supplier, then to storage, picking, and shipment locations, correctly managing your inventory replenishment ensures that products move through the supply chain at an optimal rate and that your products are ready to be picked and shipped as orders come in.
When replenishment is properly managed, you’ll find that your ability to meet customer demand, fulfil orders, and turn a profit also improves. In order to do this, you’ll need to consider the different components of replenishment and determine how you’ll manage them.
Why is Replenishment Important?
Unsurprisingly, the process of taking your products from raw materials to store shelves can impact your entire business. And, ensuring that this process is efficient can help you:
Avoid stockouts and reduce backorders
Prevent overstocking and reduce capital spent on storing dead or unsellable stock
Fill product orders and avoid sending products in multiple shipments
Knowing precisely how much stock to order and the best time to do so can be the deciding factor for whether customers can buy the product they’re looking for from your business or they will turn to a competitor.
Just like many other aspects of life, there isn’t a replenishment method that will suit and work for everyone. The best choice for your business will depend on your business model, monthly orders, and the kinds of products that you offer. Among the plethora of methods available to you, here are just a few for you to consider.
Reorder point method
This method uses a reorder point - the minimum amount of stock on-hand - for each of your products to determine when and how much stock to reorder. The reorder point is determined by adding the demand during a given product's lead time and the level of safety stock, and ensures that you’ll have enough stock on-hand to meet customer demand.
Also known as lean time replenishment, this method involves topping-off inventory levels in storage locations during slower demand periods or down time. This helps you avoid stock outs for pickers, maintain high turnover rates for your inventory, and make your picking operations more efficient during peak periods.
As a result, the top-off method is particularly suitable for businesses with short picking periods, such as those selling high-velocity products.
As the name suggests, the periodic method involves restocking products at set intervals (or periodically). This also means that inventory levels are checked at specific times or dates, without considering how lock stock levels may drop to before those times or dates.
Since this method can be riskier in terms of stock outs, it’s mostly used by warehouses with greater storage capacities.
Auto-replenishment uses Artificial Intelligence (AI) to automate reordering and optimize your replenishment process. This is usually offered by particular software, such as Remi AI’s Auto-Replenishment platform, which uses a Reinforcement Learning (RL) algorithm to develop an optimal replenishment strategy.