Five Secrets of Successful Inventory Replenishment You Need to Know

Inventory Replenishment Checklist

Knowledge is power, as the old saying goes, and that’s certainly true about Inventory Replenishment. Let’s review this critical link in your supply chain and identify where you need to tighten down your processes. Inventory replenishment is ultimately about knowing what to order where, when and how many to meet the demand for service while maintaining the lowest operating cost (inventory optimization) to maximize your profits.

Here are Five Things (click here to learn why) everybody should know when it comes to inventory replenishment. We have attached links for a deeper dive into each of the individual points.

Demand Driven is Critical for Inventory Replenishment

1. Companies that do the best job at inventory replenishment use demand driven concepts: This is because demand driven concepts not only take replacing inventory into consideration, but they also predict the shopping patterns of your customers. In the marketplace today, a successful retailer must focus on future demand, not past sales by product and location. While the term, demand planning sounds like a key piece, the truth is 99% of all demand planning is still a top down push model that is not demand driven. The cost of inventory and operations will ruin a business faster today than at any time in the past. Learn where you have opportunities to become Demand Driven.

Read more on the ROI found by improving Your Demand Forecast and Learn a few methods to calculate that ROI (note we did not say ‘sales’ forecasting). Click here to learn- Proof: Improving Forecast Accuracy delivers High ROI

Lead Time Forecasting

2. Knowing when, as well as how much, to order, consists of analyzing precisely when there will be a demand for the products that you carry: This is extremely important. Be sure to take the time between placing your order and when it actually arrives into account. If you don’t, you will end up running out of a particular item before it is time to reorder. This is why Lead Time Forecasting, not demand planning, is the better tool to signal when to place an order and how many need to be on the order to meet service while awaiting the replenishment order’s arrival.

Inventory Optimization

3. If you order too much of a product, you could waste money and space having it sit on your shelf: Also, if you sell perishable food, you could end up literally and figuratively eating the cost of the product. Your Inventory Replenishment system should have accurate demand forecasting and promotion management that actually forecast promotional lift based on the type of promotion or event. The system needs to understand shelf life and the cost of ordering. Just because the vendor says they have a deal they are offering with X% off doesn’t mean you will make X% more gross margin. Buy too much or at the wrong time, and your deal can lose you money…I know, I know that never happens. That is why Inventory Optimization is critical, you should measure how much to carry to flag when/if to buy more.

Inventory Replenishment Alerts

4. If a product is in particularly high demand, over a large-spread area, your supplier may run out: If you are placing an order for an item that you know will be in particularly high demand from your supplier, such as candy right before Easter, be sure to order enough to get you through in case the item can’t be ordered for an extra week or two. Again, remember lead time forecasting, demand forecasting and an accurately optimized order cycle calculation are critical to maintain service to your customers. Then you need custom alert tools to automatically exception manage only the exceptions you choose based on your business.

Promotion and Event Management

5. Be sure to take coupons, advertisements and promotions into consideration when placing company orders: While replacing what you sell should usually be a part of your concern, if you just finished a promotion on a particular item, you probably won’t be selling as much of it in the near future as you have over the past week. You don’t always have to replace everything that you sell if you don’t expect the item to sell as quickly. To put it differently, you don’t replenishment a Christmas tree inventory on December 26 – you will never sell it. Many forecasting systems use a time series algorithm and are never accurate at predicting demand for promotions and events. Many more systems do not forecast promotions or events, believing tools like Excel are good enough. Inaccurate forecasting and lack of demand forecasting tools for promotions and events cause many retail businesses to fail every year.

A Final Note on Inventory Replenishment

Inventory Replenishment not only helps you and your business, but your customers as well. It ensures their happiness as well as money in your pocket. If you run out of a product that a customer of yours is looking for, they may go to one of your competitors to find it. Not only will you be losing the business that you could have had on that item, but they may decide to continually shop with your competition.

Ask Questions, Start Discussing, Learn from Others

To talk more about Inventory Replenishment, or Demand Concepts within this article, please Contact Us. Certainly, if you have any questions about inventory replenishment, we can help.

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Stuart D

Stuart Dunkin is a strategic visionary who leads by calling on his broad range of experience as a former retail executive as well as a consultant for top retailers and for the E3/JDA software company. He founded Data Profits to solve a real-world problem plaguing retailers today – the disjointed relationship between supply chain data, people and business goals. He has experienced first-hand the challenges and frustrations that occur when decisions are made based on wrong data, which often leads to the wrong actions being taken with crippling results like overstock, out-of-stock, and increased working capital.
Stuart graduated from Auburn University, with bachelor of science in business administration.