Inventory Replenishment system: ​​Explanation, Definition, and Methods

  • Mar 16, 2022
  • 8 min read
Cover: Inventory Replenishment system: ​​Explanation, Definition, and Methods

Maintaining proper inventory levels is more important than ever before in the age of consumer expectations for lightning-fast order fulfillment. Keeping your customer satisfaction rates high is challenging when using manual or outdated processes.

The average American retailer has a 63% inventory accuracy rate. Another 34% of businesses send orders late owing to inventory shortages. 

Inventory management is an essential component of the e-commerce supply chain since it affects consumer loyalty and brand experience. 

The easiest way to find ways to improve your inventory replenishment strategy is to think about which basic technique works best for your company.

What is inventory replenishment?

The process of shifting products from inventory storage to picking shelves, or receiving e-commerce merchandise from a supplier to stock at a warehouse or fulfillment center, is referred to as inventory replenishment, sometimes known as stock replenishment. Businesses benefit from efficient inventory replenishment in numerous ways, including preventing stockouts or overstocking, lowering transportation costs, and increasing customer satisfaction.

Companies must commit to the process of developing an effective retail replenishment plan, which includes: 

  • Real-time inventory data collection.
  • Get complete visibility across your whole supply chain.
  • Creating demand projections and replenishing inventory collaborates with salespeople, inventory management, long-term customers, and suppliers. 
  • Identify the elements that could substantially impact your demand prediction and inventory replenishment strategies, such as a competitor's entry or exit, seasonal demand, and supplier troubles. 
  • Make a strategy for what you'll do if your demand isn't met.

Inventory management and replenishment are at the heart of operations for both manufacturers and merchants. Products cannot be manufactured or sold if the necessary materials are unavailable. In other words, inventory health is an aspect of business that cannot be overlooked.

Why is inventory replenishment important for retailers?

Companies can quickly fulfill every order with an efficient inventory replenishment procedure, keeping customers pleased while increasing profitability and lowering costs. A good inventory replenishment process has the following advantages:

1. Avoids overstocking.

An intelligent inventory replenishment procedure can also help minimize overstocking on merchandise that may become unsellable if left unattended for too long, such as perishable foods and beverages or cosmetics with an expiration date. Overstocking, like not having enough goods, can hurt your bottom line. 

Deadstock can result from replenishing stock too early or without regard for changes in customer demand or seasonality, which raises carrying costs by allowing unsold inventory to lie on shelves for too long. 

2. Prevents stockouts.

Stock replenishment strategies assist firms in avoiding stockouts and backorders, the dreaded situation of being unable to fulfill orders immediately due to a lack of inventory. A stockout occurs when a merchant fails to restock inventory at the appropriate moment, resulting in things being out of stock at the time of purchase. 

Backorders are possible, indicating that an order has a date for when the item will be ready to ship. Stockouts and backorders can be pretty aggravating for your customers. 

The easiest method to minimize common stockout difficulties is to keep safety stock, backup inventory, or emergency inventory on hand.

3. Reduces shipping costs.

Businesses can manage shipping costs by optimizing stock replenishment. Sending items from a single purchase in many shipments raises shipping costs, wastes more packaging, and confuses customers. Based on past data, you may estimate demand and select how much inventory to hold at the SKU level at each warehouse site. 

Note: Spreading your inventory between fulfillment centers is a retail supply chain best practice that involves keeping a list as close to your customers as possible.

Efficient replenishment can help businesses ensure that inventory is distributed evenly across fulfillment centers and that orders are shipped from the closest locations to customers.

4. Improves customer satisfaction.

Companies can fulfill more orders faster when stockouts are eliminated or reduced, resulting in increased revenue and profit. On the other hand, too frequent stockouts might escalate consumer dissatisfaction, driving customers to competitor providers.

4 main inventory replenishment strategies

Demand strategy 

This technique entails a strategy that communicates the need for inventory replenishment based on expected demand. That, too, necessitates meticulous planning to guarantee that you're ready for potential demand variations. 

When using this strategy, the amount of stock bought will often be just enough to meet demand projections, needing a substantial supply of safety stock to ensure that orders are not left unfulfilled if demand forecasts are incorrect. Safety stock is a stock buffer that allows your company to respond to random fluctuations in supply and demand, reducing the danger of stockouts if demand spikes unexpectedly.

Reorder point strategy 

Reorder point replenishment uses stock levels as the signal instead of using time as a signal for replenishment. It entails deciding on a stock level that signals when should order new goods. If you usually have 1000 units of a product in stock, you might set your reorder point to occur when stock levels drop to 200 units. You'd then reorder 800 units to get your inventory back to where it should be. To avoid overstocking, specify a maximum inventory level now that you have your minimum. Replenishment (reordering or re-stocking) is triggered when inventory is below the minimum threshold.

Top-off strategy 

The top-off inventory replenishment strategy takes a far more fluid approach, also known as lean time replenishment. Each fixed picking point is filled with minimum and maximum thresholds during these downtimes, similar to the min/max replenishment approach. 

It's most commonly utilized in high-speed industries where having good inventory levels during demand spikes is crucial, reducing the risk of low stock at the wrong time. This method helps increase efficiency during peak periods by taking advantage of sluggish demand periods to top inventory levels in forwarding pick sites. 

Periodic strategy

Periodic inventory replenishment refers to merely monitoring if inventory has to be refilled at regular periods. For example, every three months, you check the levels to see if they need to be replenished. If the inventory levels are still acceptable, you don't reorder anything. Even if your inventory runs out before then, if you use a periodic technique, you won't reorder until the cycle is complete. Only at the pre-determined review points are replenishment orders placed. 

Based on the many years of experience of our customers from different retail areas, we have analyzed all the weaknesses of the business and created the most effective inventory management system - Leafio Inventory Optimization Solution.

This cloud-based solution will help you to identify areas that require special attention quickly and accurately. This will help streamline ordering and delivering in the shortest possible time, which will lead to the successful implementation of the company's subsequent development strategy by reducing surplus, increasing sales, and cash-flow relief.

Besides, with the Leafio Inventory system, you can minimize the human error factor when generating orders, based solely on accurate data from complex algorithmic calculations to identify the real need for an individual SKU at each stock holding point.

Inventory replenishment best practices

It takes time and effort to build an effective inventory replenishment strategy. That requires accurate data on current inventory levels, customer demand, and supplier lead times. Here are some of the best practices:

1. Use inventory replenishment data

Having real-time inventory data allows you to see which items are slow movers and which are rapid movers, allowing you to make better decisions about whether to restock inventory. 

With this information, you'll be able to improve demand forecasting, calculate safety stock numbers, determine inventory turnover rates for your products, and other financial factors.

Data from your retail locations' point of sale might indicate how your replenishment process should work. Because each of your accounts is unique, carefully managing the data will help you maintain them all stocked to the appropriate level. By analyzing this data, your team will be able to improve demand forecasts and inventory management.

Inventory optimization

Inventory management involves overseeing and optimizing the storage, tracking, and organization of a company's goods or assets to ensure efficient.

2. Improve Visibility in the Field

What you don't know can certainly hurt you regarding inventory management. When dealing with high-demand items, having multiple suppliers makes sense. Data tracking across many programs and applications can become complicated, limiting your team's ability to keep precise, simple records. Utilizing technology to streamline monitoring your data in real-time gives your brand an invaluable advantage over competitors who are still using generic tools to get things done. 

Prioritizing more assertive communication between reps and retailers is another way to increase Visibility. With a solid connection comes open lines of communication, allowing any issues with inventory management to be resolved as soon as possible. Strong retailer relationships can also help you anticipate lead times more accurately, which is the time it takes for a new order of your product to reach the shelves. It is influenced by factors such as how quickly your business fills orders and transports them and the internal operations of every store. You'll be able to make more accurate inventory replenishment decisions if you better understand how each store functions daily.

3. Monitor and Adjust Your Replenishment Approach

You'll be able to use the results of your analysis to better plan for the future as time goes on and your team notices distinct patterns and trends emerging from in-store data. Incorporating your inventory replenishment strategy into a continuous improvement cycle will allow you to pinpoint precisely what is working and what needs to change. Your lead time projections will be impacted if your distributors have been late with deliveries. It's necessary to adjust your demand projections if your product sells more or less than you anticipated. It's not enough to collect data; you must constantly iterate and enhance your process using your resources.

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