- Backordering: What It Is And How To Do It Right
- How To Calculate Stockout Costs & Tips To Avoid Running Out of Stock
- What Is The Stock Replenishment Process & Why Is It Important?
- How To Calculate And Maintain Optimal Inventory Levels
- What Is Order Lead Time? 5 Tips To Shorten Purchase Order Lead Times
- Safety Stock Guide: Formulas, Purposes & Examples
- Minimum Order Quantity Explained & How To Set The Right MOQ Price
What Is The Stock Replenishment Process & Why Is It Important?
Familiarize yourself with the inventory replenishment process, including top methods and best practices for optimal stock replenishment.
Stock replenishment is a key piece of the inventory management puzzle. At its core, the stock replenishment process helps retailers maintain the right amount of inventory at the right time. And in turn, it keeps holding costs low and customer satisfaction high.
What is inventory or stock replenishment?
Inventory replenishment and stock replenishment are one and the same. Both terms describe the process of moving inventory from reserve storage to warehouse picking shelves (where it can be retrieved for order fulfillment).
Stock replenishment is a common practice for direct-to-consumer (DTC) retailers. It ensures the right products are in the right places in the optimal quantities. When the replenishment process is well-managed, inventory can be picked and packed as soon as customer orders come in.
Why is inventory replenishment important?
Effective inventory replenishment is important because it helps reduce stockouts, prevent overstocking, manage safety stock, and more.
Nobody wins when products run out of stock. For one, stockouts frustrate your customers because they can't buy what they need when they need it. And two, they also cost your company money, seeing as unhappy customers are likely to turn to your competitors.
But did you know that between 70-90% of stockouts are caused by poor stock replenishment? That means just 10-30% of stockouts happen due to inventory shortages or other supply chain challenges (like backorders on raw materials).
These are some pretty staggering statistics — and yet, they demonstrate the extraordinary opportunity brands have when they get inventory replenishment right.
Consistent replenishment helps you maintain the optimal product selection so your brand can stay in stock, fulfill demand, and keep customers coming back for more.
Stocking excess inventory can be just as harmful as not stocking enough.
That's because overstocked goods come with high carrying costs — such as the amount you pay to store items in your warehouse. And unsold inventory that is perishable or time-sensitive also runs the risk of expiring (meaning lost sales and a whole lot of waste).
Luckily, replenishment can prevent overstocking by ensuring you don't order more inventory than you're ready for. This way, you don't replenish goods with a low velocity that could wind up as dead stock. And inventory keeps flowing throughout your supply chain at the most efficient rate.
📝 Note: Inventory velocity tells you how products are selling once they're available to your customers. That means low-velocity goods have a lower turnover rate or aren't selling well for your brand. So, you likely don't need to order more of them.
Manage safety stock
Safety stock is the inventory you keep on hand in case of emergency — like a delay in the supply chain or an unexpected surge in demand. Essentially, safety stock helps your company stay agile despite fluctuations in supply and demand.
By incorporating safety stock into your inventory planning, you can create a nice cushion for when products take longer to reach your warehouse than expected.
And by doing so, replenishing your safety stock forms a terrific buffer around your business. With this replenished stock at your disposal, you won't have to worry about reducing your lead times or supply chain disruptions. Instead, you can simply fulfill orders on schedule and on budget.
Keep customers satisfied
It's safe to say ecommerce customers appreciate convenience. Most want to add items to their cart and complete checkout within just a few clicks.
But an out-of-stock message on your site can put a serious damper on that experience and may even result in lost sales. In fact, there's a 91% chance dissatisfied customers won't do business with your brand again.
But by prioritizing inventory replenishment, you can improve the customer experience and radically reduce churn.
How so? Continually replenishing your stock helps build trust among your customer base since they can count on your brand to have what they need when they need it. This builds trust and leads to better retention. And it also serves as a catalyst for your growth.
Lower shipping costs
Has your company ever divided a single order into multiple shipments? Then, you probably understand how expensive split shipment can be.
The total costs of breaking orders into multiple shipments can sometimes be double or even triple what you'd pay to send a single package (as expertly estimated by the team over at ShipBob).
But on top of being so costly, split orders also generate more waste. And they can cause confusion among your customers.
The good news is that stock replenishment can simultaneously streamline your shipments and lower shipping costs.
With ongoing replenishment, you ensure your fulfillment centers are stocked with the right amount of inventory to satisfy demand. When each fulfillment location is well stocked and well organized, you won't have to pull items from other warehouses to complete orders.
So, you can send the customer's entire order in a single shipment. And as a result, you save your company valuable time, money, and resources.
Inventory replenishment methods
Inventory replenishment can happen in a few different ways. The most popular inventory replenishment strategies for DTC brands include: reorder point method, top-off replenishment method, periodic replenishment method, and on-demand replenishment method.
Reorder point method
The reorder point (ROP) method tells you exactly when your inventory needs to be replenished, so you don't run into a stockout situation.
It works by focusing on selected stock levels. When those stock levels fall below the ROP, brands know it's time to restock.
This method encourages retailers to store a minimum amount of inventory. And it ensures you have enough stock to meet demand.
Plus, the ROP method provides financial flexibility since it keeps purchase orders relatively small by placing POs more frequently.
How to calculate reorder quantity
To calculate your brand's reorder quantity, use the following formula:
reorder quantity = [average daily usage x average lead time] + safety stock
In this equation, the average daily usage is how many units of a product are sold per day. Retailers often use a 30-day time frame to find this number.
Average lead time is how long it takes to receive an order at your warehouse once placed with a supplier. And it's measured in days.
Once you know your average daily usage and lead time, multiply both numbers to get your reorder quantity.
For example, imagine you're a sneaker brand, and you sold 90 pairs of your bestselling high tops in April. If you divide 90 (total pairs) by 30 (days in April), you'll get an answer of 3 (this is your average daily usage).
If your average lead time since the start of the year is 25 days, and you hold one day's worth of safety stock (3 units, based on your daily usage), your reorder quantity is 78.
reorder quantity = [3 x 25] + 3 = 78
Meaning, when you only have 78 pairs of these high tops on hand, it's time to replenish.
Keep in mind that you'll want to recalculate your reorder quantity regularly to preserve its accuracy – especially when your order volume increases during periods of high demand.
Top-off replenishment method
The top-off replenishment method (also called lean time replenishment) works best for brands with lots of high-demand or high-velocity SKUs.
With this strategy, inventory levels for a specific product are "topped off" during periods of low demand.
By using downtime as an opportunity for replenishment, brands can bring their stock to acceptable levels and prepare their pick locations (or warehouses) for periods of peak demand.
Going back to our example, your sneaker brand might top-off replenishment in Q1, between January and March. This way, you're not placing replenishment orders during the holidays when you're super busy. And you can still make sure you have enough high tops for the busy spring-summer season to avoid a stockout.
Periodic replenishment method
Brands using the periodic method replenish their inventory at fixed intervals, such as every 6 weeks or every 3 months. Inventory levels are only restocked at these specified, predetermined times — regardless of seasonality or how low stock levels have dropped.
So, even if your inventory runs out before the replenishment date, you wouldn't reorder until that cycle ends. This makes the periodic approach a bit risky, especially if customer demand doesn't match your forecasts (which could result in stockouts or accumulation of excess stock.)
Using periodic replenishment, your sneaker brand might restock its bestselling high tops once a quarter. While this is definitely doable, it'll take some serious up-front planning and forecasting accuracy on your part and isn't typically a recommended method.
On-demand replenishment method
On-demand replenishment is the simplest and most straightforward restocking method. As its name suggests, this method bases replenishment on customer demand.
Meaning, you'll reorder based on what's needed to fulfill orders based on your forecasted demand. Nothing more, nothing less.
This method has become the go-to for many DTC brands because it allows for smart, proactive pivots when things inevitably change within your supply chain.
If your sneaker brand used on-demand replenishment, it would only restock its high tops based on how they're selling. This would likely mean larger orders before the holidays and fewer (or smaller) orders through the late winter months in Q1.
5 best practices for inventory replenishment
No matter which replenishment method you use, there are a few best practices to keep in mind. Namely, re-assessing demand forecasts, monitoring your real-time inventory, and negotiating your reorder price.
1. Re-assess your demand forecasts
Accurate forecasts are like the backbone of inventory replenishment. Forecasting customer demand helps DTC brands manage fluctuating trends and turbulent supply chains.
And while always important, its become increasingly so as delays and disruptions post new challenges for ecommerce brands. The more spot-on your predictions are, the easier it is to satisfy demand and maintain healthy inventory levels.
So, by re-assessing your demand forecasts (or seeing how actual performance stacks up against your initial projections), you can ensure your predictions hold true.
If so, you can trust that your replenishment plans will meet demand and keep revenue flowing. If not, you can pivot quickly and accordingly to ensure you have the right amount of product in stock – before your revenue takes a hit.
2. Streamline collaboration across relevant sectors
Collaboration in modern DTC environments goes beyond company-wide emails and weekly team meetings. These days, many DTC sellers are using artificial intelligence (AI) to streamline collaboration across their brand's operations.
For instance, collaborative mobile robots can enhance replenishment by interweaving picking and restocking activities within one fluid workflow. These robots use AI to guide warehouse workers through the most efficient replenishment routes to reduce errors and raise productivity.
In fact, mobile robots are so effective that they empowered Crocs to increase its order fulfillment by a whopping 182% in Q4 of 2020.
However, other options for streamlining collaboration can also look like adopting the right tech stack. For instance:
- Narvar optimizes the post-purchase experience by communicating clear delivery date expectations to customers, providing real-time tracking, and offering headache-free returns.
- SPS Commerce provides visibility into the supply chain by centralizing the data retailers need from trading partners, like item availability and sales analytics.
- DiCentral eliminates redundant manual data entry by centralizing fulfillment channels data and automating cross-channel processes.
- Boomi identifies opportunities where brands can integrate their data sources, automate workflows, and optimize their customer journey.
3. Monitor real-time inventory data
Truth is: Static spreadsheets won't give you an accurate picture of what's happening with your inventory. Only real-time data provides the inventory insights you need to unlock growth.
That's because brands that manage their inventory with spreadsheets always work a few days behind. After all, their operational agility is only as timely as their data, which is always (minimum) slightly out of data.
Meanwhile, with an ops optimization tool like Cogsy, you can rely on real-time inventory data. This unlocks major visibility into product movement and supply chain activity. That way, your brand can make smarter, more informed operational decisions that unlock growth.
For instance, with a solid understanding of how products are selling, you'll know exactly when to replenish your warehouse shelves and how much to reorder. That way, you guarantee you have the right amount of inventory on hand to fulfill customer demand.
4. Negotiate the right reorder price
Negotiating doesn't come naturally for everyone — but it's a great tactic for securing the best deal. And while some business functions (like reorder prices) feel "non-negotiable," you won't know unless you try, right?
Before placing your next purchase order, ask to sit down with your supplier. Bring your operational plans (how much inventory you'll need to order and when) to the negotiation table -- you'll want to share these as leverage.
Then, offer to commit to ordering a hefty percentage of this plan with this supplier (without having to put anything down now).
In exchange, ask for a bulk discount based on the total amount of inventory you'll order within the next 12 months. Plus, the option to place smaller POs more frequently.
Why would a supplier agree to this? Because most suppliers don't know if or when a customer will come back. And similar to your brand, constantly acquiring new customers is more expensive than retaining an existing one (in this case, you).
So, say you can ensure you'll continue working with this supplier for the long haul. Then, they'll likely be more willing to work with you and prioritize your business. Even if this means offering you a bigger discount and allowing you to place POs that don't meet their minimum order quantities.
5. Automate stock replenishment
Perhaps the easiest way to optimize your replenishment process is to automate it.
For instance, you can use operations software to calculate reorder points, send replenish notifications, and prioritize what stock to carry at which locations.
And by doing so, you maximize efficiency by taking the guesswork out of the entire inventory replenishment process. This way, you always have the inventory you need right when you need it and keep your customers happy.
Plus, you'll also wildly reduce errors and eliminate replenishment headaches. This boosts profitability since you can keep inventory flowing and avoid those dreaded stockout situations. But it also increases your team's productivity because they'll no longer be stuck babysitting your stock replenishment needs.
Cogsy takes the guesswork out of inventory replenishment
The replenishment process can feel a bit overwhelming — especially if you’ve just started running your own DTC brand. Fortunately, Cogsy makes inventory replenishment a breeze with real-time inventory data, automatic replenish alerts, and simplified purchase orders.
Real-time inventory data
It's hard to overstate the importance of real-time sales data.
Where static spreadsheets are prone to human error and inaccuracies, real-time data is full of timely insights that can optimize your stock levels and unlock growth.
Cogsy's operations platform stores all your brand's real-time and historical data in one place so you can reference it at any point. This clarity allows you to maintain much greater control, especially when it comes to the replenishment process. And it ensures every decision you make is smart and proactive.
Automatic replenish alerts
When you team up with Cogsy, you get 24/7 eyes on your brand's inventory. The platform constantly monitors your current stock levels and historical demand, looking for emerging trends like shifting reorder points and optimal order size. (And it identifies these trends more accurately and long before a human analyst.)
Using what it finds, Cogsy then automatically emails replenish alerts, notifying you that it's time to reorder. This way, you can ensure you stay in stock – without having to bother constantly logging into your dashboard to check on your inventory levels. It doesn't get much easier than that!
Simplified purchase orders
Speaking of easy, convenient workflows... Cogsy’s purchase order feature helps you replenish at the press of a button. With just 1 click, Cogsy creates optimized POs tailored to your exact inventory needs in seconds. That way, there’s no guesswork or gut feelings involved!
With Cogsy, you can finally say “goodbye” to ordering too much (or too little) stock. And instead, make informed and confident purchasing decisions that’ll fuel your company’s growth.
Are you ready to streamline your replenishment process and start making smarter purchases? If so, request a free demo from the Cogsy team today.
Inventory replenishment FAQs
Want to learn more about inventory replenishment? Check out answers to some of the most popular inventory replenishment FAQs below!
When should a business replenish its inventory?
A business should replenish its inventory once it hits the reorder point threshold. This reorder point is triggered when your inventory levels fall to a specified, predetermined amount (which indicates that a restock is needed).
What is the purpose of inventory replenishment systems?
Inventory replenishment systems keep inventory flowing at the optimal rate by maintaining sufficient stock levels. In that way, inventory replenishment systems help prevent costly overstock or stockout situations.
What is the difference between inventory replenishment and inventory control?
Inventory replenishment is the process of moving inventory from reserve storage to warehouse picking shelves (where it can be retrieved for order fulfillment). This ensures that the right products are in the right place in optimal quantities. Inventory control, on the other hand, is a method for regulating the inventory that’s already in stock at your warehouse.