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Why Is Replenishment Important?

Learn about:

  • Why replenishment is important
  • How to create a replenishment process and the different types
  • Replenishment strategies to keep up instocks

Running out of stock is never an ideal situation. Customers get upset, and businesses lose out on sales. Replenishment ensures that items are always on the shelf, but how do organizations know which products can go out-of-stock (OOS) and which ones to reorder from the vendor?

No one can overstate the importance of replenishment. Companies don’t want to miss out on selling products to customers, but they also don’t want to be stuck with overstock. It’s a fine line between knowing what needs to stay in stock and which items to discontinue.

What is replenishment, and why is replenishment important? 

Replenishment is simply keeping items on hand by filling up what the supplier has used or what the retailer has sold. It gives businesses an edge over their competitors by always having a coveted item in stock. The definition is broad since it doesn’t address which products companies should reorder from their supplier or let run out.

An organization can sell hundreds of an item while it’s on sale. Does this mean another order to the vendor? Seasonal items are something else to consider. A company can sell out of candy corn in early November, but does the supplier need to send more?

Replenishment not only deals with ensuring the item a customer is looking for is in stock, but it also applies to when to reorder the item. In the business world, replenishment means ensuring that a supplier or retailer only orders a product to support an anticipated need.

Suppliers can easily manage when and what out-of-stock (OSS) items need reordering with a replenishment process in place.

Benefits of having a replenishment process 

Organizations will see a return when they have protocols determining when to reorder items from the supplier. Replenishment applies to all industries, from fashion and gardening to building materials and car parts. Companies only want to keep products in stock that consumers are looking for and want to purchase.

With an effective and efficient replacement process, businesses will have:

  • Increased levels of customer service
  • Higher inventory turnover and less stock sitting on shelves
  • Reduced costs in the reordering process and inventory waste

With an effective replenishment process, businesses will see less loss in unused products and improved customer satisfaction.

Cost-effectiveness 

Companies that have effective replenishment systems see monetary benefits. Whether it’s a large organization with an automated service or a small business with a team taking daily inventory, it is fiscally sound to know what to keep in stock and what to discontinue.

Having a dedicated system or team allows an organization to concentrate on other tasks that ensure a good supply chain. Staff or automated systems can prepare for late deliveries or temporarily out-of-stock items since there was time to communicate with the vendor.

Businesses will also know when there might be an excess of seasonal products, so retailers can prepare to run sales ads before the items are taking up space on the shelves. Organizations can also prepare if items are OOS in time to warn their customers.

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How to create a replenishment process

Suppliers and retailers can create a replenishment process manually or automatically. Manual inventory works for small and mid-sized businesses, but it’s not ideal for larger corporations. There’s too much inventory to track and reorder. In these cases, automatic systems work best.

There are four methods companies can use for their replenishment process. Different businesses will find that what works for them isn’t always the best option for a competitor.

Reorder point process 

Companies will need a robust information technology (IT) system to monitor their inventory as an item sells. It is useful and ensures a product isn’t out-of-stock.

The process is simple. The supplier or retailer enters a maximum and a minimum number of items in stock into the system. When inventory levels fall below the minimum threshold, the system sends a message to reorder to the vendor.

Periodic process 

Smaller companies will see profit increases using the periodic process. It works for several industries, including fashion and gardening.

Instead of constantly monitoring inventory levels, the supplier manually performs the process every three months. If the items are in stock and there’s back inventory, no reordering is necessary. The company only orders the product when it’s low and during the periodic check.

Seasonal replenishment process 

Businesses that use this strategy are the ones with high-demand sales for a set period. During the busy season, there isn’t time for inventory. Instead, the company only does this during the down or slow time. It does leave a risk for items being OSS.

During the downtime, the business checks and restocks inventory with the available product. Retailers contact vendors are to replenish the shelves. It is a good way to avoid overstock problems while still keeping most customers satisfied.

Demand replenishment process 

Demand replenishment is a straightforward strategy that works well for many businesses. Suppliers only replenish stock on consumer demand. If a product isn’t selling, the retailer doesn’t reorder it. Out-of-stocks are common with this process but only by customer demand.

A company’s inventory does need frequent checking. An automated system works best. These systems track inventory in real-time, so retailers and suppliers are in sync. Organizations also need to be ready to meet changing customer demands. Tracking popular items is critical, along with having back stock.

The process needs careful planning for it to be successful for the business. Creating a demand plan, as well as a supply plan, helps with this strategy.

Replenishment strategies and supplier success 

Running out of a product one or two times doesn’t affect most businesses. Companies can expect OOS to occur with popular items. When a business is consistently out of an item, or several products, profit margins will begin to fall. The supplier and retailer will both lose out on sales, along with potential returning customers.

Replenishment is an integral part of any business. It ensures that products are on the shelves. However, replenishment also means companies only have what they need in stock, including overflow product.

Having a replenishment process designed to fit the company ensures that the retailer can stock its shelves for customers. It also helps to prevent over-ordering, especially seasonal items. Under-ordering is just as harmful to a business, and a replenishment strategy will prevent this.

Find a replenishment strategy custom fit for you

With SupplyPike’s Retail Intelligence app, you can view your instocks and weeks of supply with ease. See store versus distribution center inventory numbers and prevent out-of-stocks.

Retail Intelligence – Ladder Report – Store & DC Inventory
Retail Intelligence – Ladder Report – Store & DC Inventory

Dive into deep insights with our Replenishment dashboard, showing instocks, fill rate, and forecast data.

Retail Intelligence – Walmart Replenishment tool
Retail Intelligence – Walmart Replenishment tool

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Updated on March 15, 2021

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