Why is replenishment necessary for retailers?
Imagine a customer browsing through the shelving racks in your store during their lunch break. They choose a product they like and decide to buy it online because there is not enough time right now.
When a customer finds this product in your online store and wants to buy it, the customer receives an "out of stock" notification. He is at a loss because just 30 minutes ago they saw the desired product on the shelf. Disappointed, the buyer clicks the mouse and forgets about this product forever.
Your business just lost an easy sale. Why? Because it's running on an inefficient replenishment system. However, store replenishment efficiency has a big impact on the profitability of a business.
What is replenishment?
Replenishment is the purchase of a product on a regular basis to meet expected needs. Today, retailers compete with an inventory expert like Amazon, which has a well-funded and well-established order fulfillment operation. Losing easy sales, as in this case, causes a retailer's loss over time.
Fortunately, these sales losses can be avoided with a robust restocking strategy. To create it, companies should commit to the following:
- Online stock data capture;
- Getting end-to-end supply chain visibility;
- Collaborating with salespeople, inventory managers, long-term customers, and suppliers to create demand forecasts and replenish stocks;
- Identifying factors that could materially affect your demand forecast and restocking strategy, including the entry or exit of a competitor, seasonal demand, and supplier issues;
- Creating a contingency plan for your actions if your demand forecast does not come true;
- Replenishment rules development.
Distribution planning is often an individual process. However, replenishment requires a proper understanding of distribution obligations in order to fulfill relevant current and future orders.
Why is replenishment important?
The automated replenishment system is never idle. It constantly monitors inventory, sales, and demand. The risk of human error is completely excluded. A good replenishment system also takes into account forecasted changes in demand and adjusts replenishment orders. This raises service levels, results in increased sales, and improves customer satisfaction.
The system also contributes to:
- Reduction in expenses for the process;
- Reduction in inventory and improvement of inventory turnover;
- A higher level of service.
A well-calibrated store restocking system categorizes items individually and assigns different attributes to them. This provides for setting higher service level targets for the products that customers consider most important and buy most often.
The replenishment system can manage inventory more accurately than any human customer. If an inventory is managed manually, it is impossible to accurately estimate the demand for each SKU. Instead, you need to manage products as groups using basic rules. Therefore, if it is necessary to increase the overall level of service, the inventory supply buffer is usually increased for a wide range of goods, many of which will end up being overstocked. On the other hand, a competent in-store replenishment system can calculate the safe stock amount for each SKU individually and set them to best meet service level goals, taking into account the predictability of demand, delivery time, and delivery accuracy of each SKU. Greater accuracy in inventory management, provided by a good replenishment system, makes it possible to simultaneously increase the level of service and inventory turnover.
These benefits can be delivered quickly and easily. This means streamlining demand forecasting, inventory management, and determining order periods and the number of orders by making them more systematic and accurate, as well as increasing the level of automation in routine replenishment areas so your team can focus their knowledge and expertise on the areas that need more attention.
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.
What should you pay attention to when choosing a replenishment system?
The companies differ. Supply chains, cost structure, management style - everything is unique in its own way. Replenishment systems should fit the company, instead of the company having to fit the system. They should be tailored to the specifics of each supply chain, and the systems provider should understand the client's business in all its complexity.
When choosing a replenishment system, consider the following essential features:
- The system should support automatic demand forecasting at the SKU level and be able to automatically consider periodic or seasonal fluctuations, as well as trends and changes in demand;
- The system should be able to calculate efficient stock levels at the SKU level, taking into account the predictability of demand, timeframes, and accuracy of delivery;
- Streamlining the number of orders and order periods at the supplier or product level saves money;
- The combination of automated routine orders with order proposals for specific critical SKUs, as well as automated exception management, makes the replenishment process more efficient and reduces the resources required to operate it.
The more SKUs a company has to handle, the greater the payoff from a proper in-store replenishment. As a rule, if a company has several thousand products or more, the benefit becomes really significant. Moreover, if you have to manage several warehouses or stores, the benefit increases several times.
Conclusions
- The replenishment system provides for increasing profits;
- Automated in-store replenishment is one of the fastest ways to increase the efficiency of your supply chain;
- A good replenishment system can assess your restocking needs faster, more accurately, and more cost-effectively than a really well-functioning procurement team;
- Let your managers off the hard work of data processing so that they can use their experience, support employees in their work, and make your customers be fond of your brand;
- Due to successful replenishment, the retailer can implement established promotional, pricing, and assortment strategies. Winning the restocking game not only allows these strategies to be implemented but also allows additional profits to be gained by minimizing inventory levels and reducing lost sales.
