Stock replenishment

What is stock replenishment?

Stock replenishment is an inventory and warehousing process, which is about replacing goods, materials, or products in the right quantities at the right time, before the existing ones run out. This concept is common in industries like manufacturing units (which needs raw material inventory), warehouses, eCommerce (fulfilment centers), and retail stores (shop shelves).

Here’s a classic example of stock replenishment from the retail industry. A retail store requires 20 units of a product variant every day and the supplier takes a minimum of 3 days to deliver the product. Then, the safety stock levels are 60 and stock replenishment happens when the product count hits 60 or below.

Why is stock replenishment important?

1 - Stock replenishment is important for the following reasons.

2 - To prevent stockouts and ensure product or raw material availability and to avoid lost sales.

3 - To not stock up too much of anything, which might lead to wastage, capital being held up.

4 - To manage supply and demand well and to facilitate a lean inventory management.

Stock replenishment strategy to avoid stock-outs & overstocking

Companies make many mistakes with stock replenishment. In many companies, stock replenishment is a manual, gut-feeling based process where the actual consumption data is just used for reference.

This is why they have static re-ordering points (ordering during the beginning of every month, etc), which becomes a challenge when supplier lead time variability comes into the picture.

There isn’t criticality based or category-based replenishment too. Every stock gets treated the same way, leading to some being stocked well and some running out sooner.

This is why stock replenishment strategies become important – to prevent just-in-case over ordering and promote forecasting and data-driven re-ordering.

Every company has their own strategy for stock replenishment. Here are some common replenishment processes, like Just-in-time inventory, demand-based, top-off replenishment, and more.

Re-order point method: Specific thresholds are set, and re-stocking happens, when inventory levels fall below a particular value.

Scheduled ordering: This is more of a planned and repeated occurring, where re-ordering is placed at regular intervals: monthly, weekly, or daily.

Just-in-time inventory: Just-in-time stock replenishment follows more of a lean manufacturing strategy, allowing re-ordering only when it’s needed, eliminating the need for storing unnecessary stocks without demand.

Demand-based replenishment: A data-driven approach, where based on the current and future demand, the replenishment process happens, with the help of AI/ML systems.

How to measure stock replenishment?

You measure stock replenishment with the help of specific KPIs, formulas, and real-world tracking applications and dashboards.

Here are some common formulas related to stock replenishment KPIs.

Most warehouse, inventory, and retail/eCommerce leaders measure stock replenishment to know answers for the following questions.

1 - Are we replenishing at the right time?

2 - Are we replenishing the right quantity?

3 - Is the replenishment improving availability and reducing costs?

4 - How responsive are we to demand changes?

It’s hard to get up-to-date answers to these questions browsing through spreadsheets. But with the help of real-time dashboards, you can get these answers. These real-time dashboards for stocking & inventory can alert you when a stock needs replacement, share the best time to place the orders, and even share AI-based inferences on product demand, stock requirements, supplier reliability, and operational agility.

Challenges with traditional stock replenishment

1 - Manual counting and checking leads to late re-ordering and stock-outs.

2 - Errors and inconsistencies in numbers within a same system or across multiple data sources, especially inventory management systems. This is how poor stock replenishment planning affects inventory management, leaving no room for optimized storage usage, better control over stock levels, and customer satisfaction.

3 - Dependence on safety stock becomes higher, hence needlessly storing more and wasting money on holding costs.

4 - Lack of strategy when there is an emergency, demand rise, or demand fall.

5 - Poor and untimely communication with suppliers leading to delayed deliveries and more spending.

6 - With lack of visibility of over future demand, it becomes even more challenging.

7 - Maintaining agility and saving costs with stock replenishment

The best stock replenishment strategy for modern companies with fluctuating requirements would be re-order point strategy along with safety stock buffer, powered by data-driven and AI insights.

With AI based forecasting systems, you can predict re-order point for every product and raw materials and make advanced order placements. Since there is safety stock buffer, any changes in demand could be met, without facing out-of-stock issues.

This not only makes the inventory operations agile, but also saves money for the company, preventing rush ordering, improving cash flow, and reducing out of stock moments.