What is inventory replenishment? Why do you need it?

8 min read

Inventory replenishment is how businesses systematically take necessary measures to deliver items down the supply chain to keep stock levels consistent. Inventory replenishment is one of the most crucial components of logistics operations responsibilities and one of the key strategies for ensuring customer satisfaction. 

Inventory replanishment


It entails transporting inventory from a backup storage facility to a primary storage facility and ultimately picking points. 


The term “restocking” can refer to both inventory ready for sale and raw materials received from suppliers. It is vital to precisely manage the inventory replenishment process so you will have enough inventory on hand to pick and pack each order as soon as it arrives.


Why is inventory replenishment significant?


Businesses must have a robust replenishment strategy to avoid costly supply chain problems such as out of stock and overstocks. 


A stockout occurs when a retailer fails to restock inventory at the right moment, resulting in products and services being out of stock at the time of purchase.


Backorders are also possible, meaning that an order has a dated delivery. It is essential to understand that out-of-stocks and backorders can cause unpleasant experiences for your consumers. Not only can they result in a waste of valuable resources, but they also can have a drastic effect on consumer loyalty and the overall trust in your company. They can also endanger your position in a competitive market. 


So, to minimize frequent stockout difficulties, it is vital to have backup inventory in case of emergencies. Having a safety stock can also assist you when unexpected errors arise in the supply chain of your business. 


Keep in mind that overstocking can be as damaging to your company as being out of stock


It is also essential to understand that excess inventory may stymie new product launches. Overstocking on merchandise may become unsellable if left unattended for too long. For example, perishable foods, drinks, cosmetics, and other products with an expiration date can cause serious challenges for your business. 


Moreover, overstocking can lead to supply chain breakdown. It is crucial to understand that brands need to commit extra investments to handle extra inventory. This, in turn, might cause several issues, such as replenishing stock too early. 



What are inventory replenishment strategies?


inventory replanishment


Now that you know more about inventory replenishment and why it matters, it is time to learn its planning methods.  


Reorder point technique


Inventory reorder point methods guarantee that you have a good product on hand to meet client demand at all times


Reorder points also provide you additional financial freedom by ensuring that you always have a minimum amount of goods on hand. Based on previous order data, the reorder point formula (demand during lead time + safety stock) lets you determine the proper stock levels to fulfill customer demand, so you know how much and when to restock.




Top-off replenishment strategy


A top-off replenishment strategy brings the stock to an acceptable level at front picking points. 

In this case, each fixed picking point is filled with minimum and maximum thresholds. Using this method, inventory levels for a particular product are “topped off” in their appropriate storage locations during slower times or downtime, allowing you to have a high inventory turnover rate without having to worry about stockouts for pickers. 

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Inventory, Order & Shipping Management Software


The top-off approach is the most appropriate inventory replenishment strategy when your inventory contains a large number of fast-moving SKUs.



Periodic inventory replenishment 


For periodic inventory replenishment, it is essential to employ specific periods. For instance, you review the stock levels every three months to determine if they need to be replenished. 


When stock levels fall below the bare minimum, replenishment is requested. If this is not the case, the procedure is postponed until the following interval.



Demand management strategy


Demand management strategy is perhaps one of the most apparent and straightforward methods adopted by many organizations. 


With demand management strategy, restocking or reordering is restricted only to what’s required to fulfill orders. 


It is essential to make sure you can prepare your stock for customer demands shifts. To make your firm adaptable to handle demand variations, you’ll need a safety stock. It reduces the danger of stockouts if demand spikes unexpectedly.



Use Data on Replenishment 


To enhance the performance of inventory replenishment and your overall business, it is essential to use data. 


Using data can help you make financially and strategically more informed decisions and optimize your inventory management. 


For instance, accounts data will help you understand what products sell faster and which take more time. You will also figure out whether your reorder frequency matches the demands. By analyzing this data, your team will be able to enhance demand forecasts and inventory management. 


Keep in mind that accurate demand and lead time projections reduce the chances of a stockout or backorder. Moreover, you will decrease the probability of receiving more products than they can handle. 


Implement inventory management systems


With modern inventory management systems like eSwap, you will be able to have total control over your inventory, conduct precise restocking, have fast and trustworthy shipping, and more.


With eSwap you can easily manage your inventory across several locations using the warehouse management function


This feature allows you to control the status of your goods from a single dashboard. It includes all parts of inventory management, including selection, packaging, shipping, and receiving new goods. The warehouse management feature will also allow you to access valuable data regarding out-of-stock or low-stock products.