Every business sustains some form of inventory, either in the form of raw materials or finished goods. It is essential to satisfy consumer demand at the right time, making them happy. Replenishment planning ensures that the correct quantity of products is present at the right location and assists in avoiding situations of overstocking and understocking. This process assists retail businesses in gaining a competitive edge over others by refilling the inventory with products with low stock.
Replenishment planning can answer questions such as what would be the demand for a particular product in the upcoming months? What quantities should be stocked after the primary season for a product has just ended? The acquiring of products regularly to support the anticipated demand is known as replenishment planning.
What Is Replenishment Planning?
Replenishment planning is refilling fast-moving stock that has low quantities or is out-of-stock. Replenishment planning ensures that businesses have the right quantities of goods across all the distribution channels at the right time to increase sales and reduce costs.
Replenishment planning determines how to restock inventory profitably throughout the year and what quantities should be reordered. The selection of vendors with low lead times is also involved so that the goods can be acquired at a low price and at the right time. Replenishment planning primarily aims to reduce stockout situations, overall expenses, and unanticipated markdowns.
How Does Replenishment Planning Work?
Replenishment is a complicated process that takes into account several factors. It needs correct demand planning that provides an estimate of what inventory is required in the coming months, at what location the demand would be high, and when must the replenishment order be placed. Replenishment planning is a simple process for small businesses and retailers supplying products to one or two locations. You can plan the replenishment process in Excel with an accurate and updated count of your inventory and sales. You need to predict how long the existing inventory will last, and you should place replenishment orders before the stockouts occur. Small retailers do not have complicated supply chains, so prices and shipments can be planned.
But as the business grows, so does the complexity of the replenishment process across multiple locations and channels. Instead of estimating demand for a single store with certain specific products, large businesses have to estimate demand for every store and distribution center separately. Every channel and location has certain factors influencing your demand, including local competitors, demographics, product seasonality, consumer preferences, shipping time, shipping cost, distance to the distribution center, and more.
Most organizations incorporate predictive analytics and advanced algorithms depending on historical sales data for estimating future demand. Replenishment planning should also review the estimated lead time for every order. Lead time is the time taken from when the order has been placed to the time when the inventory has been stocked. Based on the kind of business, lead time calculations should consider the time required for manufacturing, packaging, and shipping the inventory and the time needed to process the delivery when it arrives. Lead times can vary and should be considered depending on the individual items.
Other factors influencing replenishment planning are shipping distances, buying discounts for bulk orders, safety stock needs, vendor quantity restrictions, and other aspects that might impact delivery and total expenses. Replenishment planning should also consider exceptional situations such as discount sales, product seasonality, local competitors, new store openings, customer demographics, and more.
The Importance of Replenishment Planning
Replenishment planning offers a host of benefits for companies. Companies should not ignore the essence of inventory planning as it can increase sales and minimize wastage and losses. Some of the benefits that companies can derive out of replenishment planning are:
- Minimize stock outs by reordering items just when it is required.
- Cut shipping expenses by combining orders whenever possible and reducing logistics routes.
- Eliminate unnecessary locked-up resources in inventory by only ordering inventory that has demand in the market.
- Reduce the expenses of store transfer by ensuring that every store has its replenishment plan.
Replenishment aims to maintain a constant flow of products through the supply chain by efficiently placing replenishment orders. Without proper inventory replenishment, businesses might risk their resources and success rate. A manufacturer may be out of raw materials, resulting in production delays, or retailers might be out of products and goods in demand. This may result in losing sales and revenue, and customers would move to other brands, affecting customer loyalty.
Inventory replenishment assists in preventing stockout situations while avoiding the cost of storing excess inventory.
About the Company
Fountain9 assists companies in predicting demand accurately through their AI-based inventory planning software, Kronoscope, which considers various internal and external factors such as historical sales data, seasonality, promotions, and so on. It helps companies stock inventory optimally to meet the current demand and keeps customers happy.
