Replenishment 101: What Is Replenishment?
What is replenishment?
The dictionary defines replenishment as the “restoration of a stock or supply to a former level or condition.” So, typically this means that product is missing from the shelf and needs to be refilled or replenished. The product will have to be shipped from the reserve storage in the supplier’s warehouse to the primary storage in the retailer’s distribution center and then onto the store itself.
Why is replenishment essential?
Out-of-stocks occur often and can be a real hassle to both the consumer and the supplier. It’s frustrating having to either purchase a different brand of the product you are looking for or to forgo purchasing the product altogether. As a supplier, it’s even worse, since you are losing sales until you replenish your stocks and losing customers to your competitors. Additionally, retailers issue chargebacks if you don’t meet your instock goal.
Walmart, as an example, has a corporate instock goal of 98.5%, meaning that if your product is sold in 1,000 stores, 985 must be appropriately stocked. Otherwise, there are fees levied. Walmart has over 4,700 stores in the United States alone and 42 regional distribution centers (not including grocery or import centers). Just one Walmart DC is one million square feet, so it can be tough making sure all products are where they need to be.
What causes out-of-stocks?
These days, it can be hard to keep the right amount of product on the shelf. Viral marketing has changed the CPG game completely. A sudden retweet from an influencer might spike sales overnight, causing stores to run out of products before more are scheduled to arrive. Other factors may come into play as well. An ice storm may cause delays in your shipping so that your product doesn’t reach the stores on time from the DC, or your buyer may decide to run a sale, or your new marketing campaign did much better than expected.
The replenishment cycle
In this post, we will look at Walmart as an example of the replenishment cycle, but other retailers have similar processes as well. Large retailers often have multiple replenishment channels, but the process below is usually a pretty good starting point if you want to familiarize yourself with their supply chain.
- Walmart’s replenishment system notices there is an Out of Stock instance at the store level.
- The system aggregates Out of Stock quantities at the DC level.
- A Purchase Order is written to the Supplier, with details like:
- Quantity needed
- Must Arrive by Date (MABD)
- DC destination
- The supplier receives the order and ships it out (either Prepaid or Collect) to arrive by the MABD.
- The product arrives at a Walmart Distribution Center, where it is parsed out onto trucks that take it to the stores.
- Walmart stores typically receive shipments of products every day, and shelves are often stocked at night.
- A consumer will pick an item off a shelf and scan its UPC when checking out, and the replenishment cycle begins again.
Walmart will accept +/-20% of forecast sales, and they measure returns as a negative to your on-hand. Poor instocks may require a Store-Specific Order (SSO) in order to replenish your product outside of the cycle and allow you time to adjust your forecasts and demand plans.
Thinking like a replenishment analyst
There are vital questions to ask yourself to make sure your replenishment cycle is working as expected.
- Did we ship in full?
- Did we ship on time? If not, were we early or late?
- Did I outsell my forecast?
- How do I prioritize which items to address?
- 90% instock in 4000 stores vs. 90% instock in 400 stores
- Is my instock trending up or down?
- What does my pipe look like?
Instock tends to drop at the end of the week and rise at the beginning, so that is something to keep in mind. At times you will also notice that you may be meeting your sales forecast, but you are still experiencing issues with out-of-stocks. This could mean you have some stores that are overselling their forecast, while others are underselling theirs (canceling the item’s forecast variance out).
What can I do to keep up with my instocks?
If you are experiencing out-of-stocks, there are a few things you can do.
Ensure you are shipping On Time In Full
First off, make sure your product is getting to your retailer within the timeframe it is expected and in shipments that contain all of the product ordered. SupplyPike can help with our Retail Intelligence Walmart OTIF Scorecard. You can view the number of cases ordered and compare them with the amount that shipped, went unfilled, came early, or arrived late.
Submit a Store Specific Order (SSO)
If you have stores with low instocks, you can submit a store supplemental order to get your instocks back up to your goal. This process involves filling out a complicated form that you can get from your Replenishment Manager (RM) at Walmart. Or, you could just use our SSO generator.
Recommend a forecast adjustment
Perhaps you need to look at your demand plan and figure out which direction your sales are expected to go. Once you have an idea, you can recommend a forecast adjustment. You can start by checking your Quartile Report, which can easily identify your top selling stores.
SupplyPike Can Help Too!
Improve Compliance - In 2021, 380 SupplyPike users had an average OTIF Score of 90%. Prevent and predict future OTIF issues before they hit your bottom line.
Fight and Prevent Deductions - Automate your disputes, increase your recovery rate, and identify root causes from multiple retailers. All in one app.
Root Cause Analysis - Don't settle for just winning back money that shouldn't have been lost in the first place. Improve your supplier performance by ironing out the kinks in your supply chain.
With the above tools, you can recover lost sales and prevent instock fees. And you can start a free trial today!
Written by The SupplyPike Team
About The SupplyPike Team
SupplyPike builds software to help retail suppliers fight deductions, meet compliance standards, and dig down to root cause issues in their supply chain.Read More