Organizations must use effective replenishment planning to maintain efficient inventory management, reduce stockouts, and maximize customer satisfaction. In reality, replenishment planning is a rather complex process that must take into consideration a variety of factors, such as logistics routes, deadlines, availability, and cost. After all, restocking inventory is useless if the new stock doesn’t come on time, is the wrong quantity, or is too expensive to be profitable.
Why is Replenishment Planning so Complex?
Planning for restocking may be straightforward for small businesses and retailers with one or two locations. You may arrange your complete replenishment process in Excel if you have an exact, current count of your inventory and sales. Simply determine how long your current stock will last you and schedule a replenishment before it runs out completely. Additionally, since small businesses often don’t have intricate supply chains, it is possible to plan ahead for shipments and prices (by offering bulk discounts or making fewer shipments, for example).
Unfortunately, medium-sized and large retailers find it difficult.
The number of channels and locations you add increases how complicated your restocking process is. You must make demand predictions for each store and channel separately rather than attempting to forecast demand for one store and a small number of SKUs. Your replenishment will depend on a variety of factors that are unique to each channel and region, including demographics, local competitors, consumer preferences, product seasonality, shipping time and cost, and distance to a distribution centre.
Calculating optimal replenishment manually is incredibly difficult due to this intricacy.
A good inventory replenishment strategy ought to:
- Reduce out-of-stocks by bringing in inventory only when it is required.
- By just refilling with merchandise that is likely to sell, you can reduce wasteful markdowns.
- Consolidate orders whenever possible, and cut logistics routes to reduce shipping costs.
- Reduce store transfer expenses by ensuring that each shop has a successful restocking strategy.
Best Practices for a Good Replenishment Plan
It comes as no surprise that merchants are searching the internet for information on how to organize inventory replenishment for their business. Here are some best practices that they could follow:
Data-Driven Forecasting
Accurate demand forecasting forms the foundation of replenishment planning. By leveraging historical sales data, market trends, and customer insights, businesses can make informed decisions about inventory levels and reorder points. The key to effective forecasting is to utilize advanced analytics tools and algorithms that can process vast amounts of data, identify patterns, and generate accurate predictions. Additionally, it is crucial to continuously monitor and update the forecasting models to adapt to changing market conditions.
Collaboration and Communication
Replenishment planning is not a standalone function but a collaborative effort that involves multiple departments within an organization. Effective communication between teams, such as sales, marketing, operations, and finance, is vital to align inventory strategies with business goals. Regular meetings and cross-functional collaboration can help identify potential risks and opportunities, resolve conflicts, and ensure everyone is working towards a common objective. Open lines of communication also enable quick adjustments in inventory replenishment plans based on market changes and customer feedback.
Inventory Segmentation
Not all products have the same demand patterns or profitability. Therefore, businesses should adopt inventory segmentation to differentiate their products based on various factors such as sales velocity, lead time, and profitability. By categorizing products into different groups, such as fast-moving, slow-moving, or seasonal items, businesses can allocate resources and prioritize inventory replenishment efforts accordingly. This approach enables more accurate demand forecasting, helps optimize inventory levels, and ensures that critical items are always available to meet customer demands.
Safety Stock Optimization
Safety stock acts as a buffer against uncertainties in demand and lead time. However, maintaining excess safety stock can tie up valuable working capital and increase carrying costs. Businesses need to strike the right balance by optimizing their safety stock levels. This can be achieved through statistical methods that consider factors like lead time variability, demand volatility, and desired service levels. By applying these techniques, organizations can reduce stockouts while minimizing the overall investment in inventory.
Supplier Collaboration
Collaborating closely with suppliers is crucial for successful replenishment planning. Establishing strong relationships with suppliers and fostering open lines of communication can lead to improved lead times, better pricing terms, and increased reliability. By sharing demand forecasts and sales data with suppliers, businesses can enhance supply chain visibility and enable proactive planning. Additionally, businesses should consider implementing vendor-managed inventory (VMI) systems, where suppliers take responsibility for replenishing inventory based on real-time sales data.
Leverage AI and Advanced Analytics
Modern AI and advanced analytics tools have developed enough to handle the labour-intensive task of replenishing. For instance, advanced analytics designed for restocking can look at a retailer’s products in great detail and produce a unified predictive analysis of every component described above. In order to maximise GMROI and ensure that customers can obtain the products they came to your store for, inventory replenishment is optimized at an SKU and store level.
Today’s technology makes it possible to assess the dependability of the inputs that businesses are using. For instance, taking into account how frequently a vendor delivers the product on time or finding a way to combine shipments to speed up delivery and lower the cost. In addition to reducing costs by eliminating human error, automating large, specific, and routine processes frees up staff members to concentrate on strategy and exceptions.
About the Company
A complete solution for inventory replenishment is offered by Fountain9‘s AI-powered replenishment planning software, Kronoscope. By proactively placing orders before products run out through accurate forecasts, it enables businesses to automate the entire purchasing planning process. At the SKU level, the program precisely forecasts demand and creates inventory strategies that reduce waste and guard against overstocking and understocking problems. The software also considers factors like order lead times, supplier constraints, and production capacities to optimize the replenishment process.Kronoscope also helps in calculating and managing safety stock levels by considering demand variability, lead time variability, and desired service levels to determine appropriate safety stock buffers to mitigate supply chain uncertainties.
An advanced demand sensing and pricing engine built within the program takes into account a number of variables, including past sales trends, seasonality, holidays, markdown occasions, and price variations. The software can forecast future inventory needs thanks to this all-encompassing approach and adjust prices accordingly. most granular level across the entire supply chain. In addition, Kronoscope can determine the most suitable suppliers based on factors such as lead times and price.