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Best Practices

What is Replenishment Planning?

O9 blog what is replenishment planning
Published: Reading time: 8 mino9 Solutions The Digital Brain Platform
o9 SolutionsThe Digital Brain Platform

Purpose of Replenishment

How does the Replenishment Process Operate?

Advantages of a Replenishment Process

Methods

Best Practices

Published:

Replenishment involves reordering sought-after inventory that is either low or out of stock. It aims to guarantee that a retailer maintains the optimal quantity of products that are positioned correctly, and available at the right time to enhance sales and reduce expenses.

The planning aspect of replenishment entails determining the most profitable strategy for restocking inventory during the season. This includes deciding on the appropriate quantities, selecting vendors or shippers, and establishing the ideal replenishment frequency. 

This minimizes instances where items are out of stock or have to be marked down, in turn optimizing overall costs.

Replenishment planning encompasses:

  • Transporting raw materials from suppliers to manufacturing facilities.
  • Shifting inventory from reserved product storage to packing and shipment locations.
  • Initiating inventory orders from suppliers to maintain sufficient product levels in a warehouse or fulfillment center.
  • Transferring stock from a warehouse to a pickup facility or retail outlet.

What is the Purpose of Replenishment?

Replenishment ensures a continuous flow of inventory within the supply chain by effectively managing order and line-item fill rates. This is essential to avoiding disruptions in the supply chain. For example, without a well-defined replenishment strategy, a manufacturer may face production delays due to a shortage of raw materials. Alternatively, a retailer might fail to meet customer demand, leading to lost sales and customer attrition.

Whether dealing with raw materials or finished products ready for sale, inventory replenishment, also referred to as stock replenishment, aims to prevent both shortages and overstocking. The key is to maintain the right level of stock at the right time and place, minimizing carrying costs while ensuring availability.

How does the Replenishment Process Operate?

Replenishment involves precise demand planning, which entails forecasting the necessary inventory, determining where it will be required, and establishing the timing for its availability. To enhance accuracy, many organizations now employ advanced algorithms and predictive analytics, drawing insights from historical data to project future demand.

In addition to demand forecasts, replenishment planning must factor in the expected lead time for each order. This means the duration from order placement to the inventory becoming ready for use. Depending on the nature of the business, lead time calculations may involve considerations such as manufacturing, packaging, shipping, and processing upon delivery. Lead times can vary significantly and need to be assessed on an item-by-item basis.

Various other considerations contribute to effective replenishment planning. This includes bulk buying discounts, shipping distances, vendor quantity restrictions, and safety stock requirements. Special circumstances, such as product seasonality, discount sales, new store openings, local competitors, customer demographics, and numerous other factors, also need to be taken into account.

Advantages of Implementing a Replenishment Process

An efficient replenishment process yields the following benefits for businesses:

  • 1.

    Enhanced Customer Service: By ensuring that in-demand items are always in stock, organizations can improve customer satisfaction. 
  • 2.

    Increased Inventory Turnover: Businesses experience higher inventory turnover, reducing the amount of stock idling on shelves.
  • 3.

    Cost Reduction: The reordering process becomes more cost-effective, leading to a reduction in inventory waste.

The presence of a dedicated system or team enables organizations to focus on other aspects of maintaining a robust supply chain. Staff or automated systems can anticipate and prepare for late deliveries or temporary out-of-stock situations, thanks to effective communication with vendors.

What’s more, businesses gain insights into potential excesses of seasonal products; this enables them to put in place proactive measures such as running sales ads before these items occupy valuable shelf space. The ability to foresee out-of-stock situations also allows organizations to inform their customers in advance.

Using One of the Inventory Replenishment Methods

The implementation of a replenishment process can be accomplished either manually or automatically. Manual inventory management is suitable for small and mid-sized businesses, but it becomes less practical for larger corporations with extensive inventories. In such cases, automatic systems prove to be more efficient.

There are four distinct methods that companies can employ for their replenishment process. Here we explore each of them. 

Reorder Point Process:

To implement the reorder point process, companies require a robust information technology (IT) system to monitor inventory as items are sold.

This method involves setting a maximum and minimum threshold for items in stock. When inventory levels fall below the minimum, the system automatically triggers a reorder message to the vendor.

This approach is particularly beneficial in preventing stockouts and ensuring product availability.

Periodic Process:

The periodic process is well-suited for smaller companies, especially in industries like fashion.

Instead of constant monitoring, the supplier manually performs inventory checks every three months. Reordering only occurs when items are low during these periodic checks.

This method allows for profit increases by minimizing the need for constant monitoring and ordering.

Seasonal Replenishment Process:

Businesses with high-demand sales during specific periods can employ the seasonal replenishment process.

This means that during the busy season, inventory is not actively managed. Instead, the business conducts replenishment during slower periods to avoid overstocking issues.

Retailers contact vendors to restock shelves, ensuring items are available when demand increases.

Demand Replenishment Process:

The demand replenishment process is a straightforward strategy that’s based on consumer demand.

Suppliers will replenish stock only when there is a consumer demand and products that aren’t selling won’t get reordered. 

What is replenishment planning success?

For the replenishment process to be successful, careful planning is essential. This involves creating both a demand plan and a supply plan, utilizing automated systems for efficient tracking, and staying responsive to evolving customer preferences. We explore best practices further in the next section.

Best Practices for Efficient Inventory Replenishment Planning

Inventory planning and replenishment come with a precise set of requirements. You need to:

Assist your suppliers

Suppliers cannot anticipate needs without clear communication. If inventory is running low, it's essential to inform them. And this can be done most efficiently through modern, cloud-based collaborative tools.

For instance, by utilizing a collaborative supply-chain management tool with suppliers, it will be able to automate the scheduling of regular inventory deliveries when stock levels are low. Conversely, communicating changes in repeat orders can prevent the warehouse from being burdened with excess stock of unwanted items.

Maintaining open lines of communication with suppliers is crucial to avoiding unexpected issues and preventing minor concerns from escalating into major challenges.

Failure to communicate with suppliers can lead to various issues, including:

  • Congestion in the facility if multiple suppliers arrive simultaneously with no coordination.
  • Suppliers arriving with scheduled deliveries unaware of changes, causing disruptions.
  • Financial waste due to the acquisition of incorrect or unnecessary inventory.

Establish practical service benchmarks

Establishing practical service benchmarks allows you to proactively gauge the likelihood of fulfilling inventory estimates within a specified timeframe. Attaining these targets then allows you to ensure profitability and customer satisfaction.

For instance, if the targeted service level is set at 95%, it signifies that safety-stock levels are strategically designed to encompass 95% of all anticipated order requests. The overarching goal is to consistently deliver what the customer needs on time, achieving a 95% success rate.

It’s important to determine practical service levels that are tailored to each specific item, as a one-size-fits-all approach may not align with diverse customer demands. Employing ABC inventory analysis, which categorizes items into A, B, and C groups based on their importance, proves effective in this regard.

At its core, ABC inventory analysis allocates the highest service levels to items that significantly contribute to revenue. More sophisticated methods may involve categorizing items based on demand volatility, pick frequency, or net profit. This intricate analysis allows for the adjustment of service levels—higher for items with lower stocking costs and steady demand, and lower for expensive items with less frequent sales.

Consider product life cycle

Inventory replenishment plans are dependent on a number of factors throughout a product’s life cycle. Therefore, it’s important to understand all the stages the inventory goes through, from distribution to the channels where items are sold.

Some obvious areas to assess in distribution include:

  • Manufacturing times
  • Packing and shipping times
  • Lead times
  • Warehouse processing time
  • Customer order fulfillment
  • New order allocations

Prevent out-of-stock situations

Using an inventory management system that automatically keeps a tab on stock levels will help prevent an out-of-stock situation. Data can also be analyzed in real-time to spot trends that might lead to out-of-stock situations.

Some common methods of preventing items from being out-of-stock include:

  • Utilizing buffers – If there are only five units of an item in stock, setting a buffer will take it off the marketplace while increasing placed orders. 
  • Utilizing demand forecasting – Spotting trends and analyzing data will allow you to optimize the replenishment process by accurately predicting consumer demand.
  • Reduce human error – If staff have to manually input stock quantities and other data, errors can creep in.  An automated scanning system avoids this issue. 
  • Perform regular cycle counts – Keeping inventory organized reduces issues with the quantity of stock you have available.
  • Implement quality control – Quality control staff can spot problems and find fast solutions.

Replenishment Planning by o9 Solutions

o9 is trusted by the world's leading companies. Our Supplier Collaboration software approach excels in providing businesses with actionable insights, allows easy collaboration, and leverages built-in models.

Take the first step to achieve insights into your supplier chain management. Make better decisions based on both data and research.

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About the author

o9 Solutions The Digital Brain Platform

o9 Solutions

The Digital Brain Platform

o9 Solutions is a leading AI-powered platform for integrated business planning and decision-making for the enterprise. Whether it is driving demand, aligning demand and supply, or optimizing commercial initiatives, any planning process can be made faster and smarter with o9’s AI-powered digital solutions. o9 brings together technology innovations—such as graph-based enterprise modeling, big data analytics, advanced algorithms for scenario planning, collaborative portals, easy-to-use interfaces and cloud-based delivery—into one platform.

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