Inventory replenishment, also referred to as stock replenishment, focuses on ensuring the company reorders items from suppliers in time to meet customer demand without accumulating excess inventory. For retailers, distributors and manufacturers that have multiple inventory storage locations, inventory replenishment can also refer to the process of moving inventory from reserve storage to primary locations so that it can be used to fulfill orders.
How Inventory Replenishment Works
The determination of when to reorder items can be based on a number of factors, including customer demand, supplier lead time and desired levels of safety stock. When inventory levels dip to a predetermined reorder point, the team that manages inventory contacts the appropriate suppliers. Depending on the size of the business, the team involved in managing inventory can include warehouse managers, planners, purchasing specialists and warehouse employees. Team members may be assigned to specific tasks such as counting inventory or forecasting.
Inventory Replenishment Methods
Reorder point method: This method triggers replenishment when the quantity of an inventory item falls to a specific threshold, known as the reorder point. The goal is to order fresh inventory so that it arrives before the amount drops below a predetermined level of safety stock.
Top-off method: This method is popular among retailers and distributors that have a number of rapidly moving inventory items. This approach replenishes picking shelves during slow periods or downtime, ensuring that stock of fast-selling items is always available to fulfill orders when demand picks up.
Periodic stock replenishment method: With this method, companies review inventory levels at set intervals to determine whether they need to replenish certain items. Companies with huge warehouse capacity, predictable customer demand and low risk of stockouts often use periodic stock replenishment.
On-demand method: This method bases ordering on customer demand. Some companies may reorder only what’s necessary to fill current orders, while making sure they have adequate safety stock to avoid stockouts caused by demand fluctuations.
Why Is Inventory Replenishment Important?
With an efficient inventory replenishment process in place, companies can promptly fulfill every order, keeping customers happy while driving higher profitability and reducing costs.
- Helps avoid stockouts.
- Improves customer satisfaction.
- Prevents overstocking.
- Lowers shipping costs.
Efficient inventory replenishment is a critical element in any inventory management strategy. It helps retailers, vendors and suppliers ensure that they always have the right amount of inventory on hand to meet customer demand while minimizing excess inventory. Automated inventory management systems enable companies to manage the complexities of inventory replenishment more easily, driving increased profitability while reducing cost.