A common definition for inventory replenishment is “filling again by supplying what has been used up”- or in other words, inventory replenishment refers to the process of inventory movement from reserve warehouses to primary storage – then onto picking locations. Stock replenishment can often be used for both ready to use commodities and raw materials delivered by suppliers as well.
How does inventory replenishment work?
It really depends on the business, but in general, a team of specialists is assigned to oversee inventory requirements for the firm. Usually, this team consists of warehouse managers and specialized planners that focus on ensuring that the company has the right amount of stock to fulfill customer orders.
This team has members working on different segments of inventory management for understanding the inventory requirements for the product cycle, forecasting the demand of the products based on the market trends and other metrics which will help in stock measurement and maintaining a balanced stock-flow in the warehouses.
Demand forecasting plays a vital role in stock replenishment – it helps you understand the reorder requirement of each and every product, based on its product lifecycle and customer demand in the market.
What factors impact inventory replenishment?
You can plan ahead as much as you like, but even the best replenishment strategies often fail due to some of the following factors:
- Warehouse space is not optimized
In most of the cases when it comes to warehouse management issues, outdated or overstocked products block the new product delivery to be stocked up in the warehouse. This is why mismanaged warehouse space is one of the major reasons for stock replenishment issues.
- Poor end-to-end visibility
End-to-end visibility in today’s world is very important – why? Because maintaining on-time delivery status with the customers is vital– customers love to know the status of their orders and follow it through the whole process.
What are the common mistakes of inventory replenishment?
Incorrect lead time forecasting
Many companies face the issue of incorrect lead time forecasting from suppliers where they give a fix timeline for product delivery – but end up sending the items too soon or too late from the expected time. These improper timelines have a huge impact on your inventory levels. This can cause your company to lose sales due to delayed and returned goods.
Seasonality of the products
Another important factor to identify when it comes to inventory replenishment is a product’s seasonality. Usually, seasonality is a simple concept, and it shouldn’t be a critical factor while dealing with inventory storage. You have to be aware of how seasonal changes can cause demand instability, especially when it comes to clothing or products related to holidays.
Order cycle analysis
Order cycle basically means how often do you order form a supplier – and yes, it is as important as the number of goods that you order. Why? Because suppliers often take shipping and labour charges which depend on the amount of stock ordered by the company. If you make orders too often, then it can cost you repetitive expenditures in the long run. You need to find a middle ground between how often you order and how many products you order- this is called balanced bulk ordering. There are numerous formulas out there that can help you with some guidance, but the best answer to cost-effective inventory replenishment is to have a well thought out plan and stick to it.
Time Cycle Analysis
Time cycle – how much a product stays on our warehouse shelves – is often overlooked and sometimes even ignored. It’s essential to know the time cycle of the products in order to have just enough inventory to fulfill orders and not too much to occupy too much warehouse space. Sometimes fast-moving products run out of stock earlier than expected and this can cause out of stock scenarios – where the business can lose lots of money. This can be tackled with proper demand forecasting considering both the time and amount of stocks needed for most demanded products.
Final thoughts
Business owners should understand that neither the review process or order quantity can be 100% accurate for everyone, every time. Business requirements can vary depending on many factors including desired service levels, demand, supply, and supply lead-time.
Deciding which what stock replenishment method to use is highly dependent on the type of business model you use and also on the product lifecycle. When re-ordering new inventory we have to make sure that we don’t overstock or understock our product requirements.