At the heart of any retail customer experience is the notion that if a shopper sees an item for sale, they can expect the retailer to have it in stock. As a retailer, it’s on you to make sure you’re stocking every item that you list on your website and feature in marketing materials. To do this, you need a robust, reliable stock replenishment system. Here’s how stock replenishment works and why seamless restocking impacts customer satisfaction across your sales channels.
What is stock replenishment?
Stock replenishment is the process of refilling inventory levels to meet consumer demand. The stock replenishment process involves monitoring current stock levels, forecasting demand, and ordering additional products or goods to maintain an optimal inventory level. Also known as an inventory replenishment process, it ensures that items remain available across your sales channels without stockouts or shortages.
How stock replenishment works
- Monitor inventory levels
- Forecast customer demand
- Set reorder points
- Create purchase orders
- Approve and process orders
- Receive new stock
- Update inventory levels
- House new stock in physical storage locations
- Optimize inventory levels for future replenishment planning
Effective stock replenishment typically follows a nine-step process. You can use these steps in your own inventory planning process to ensure efficient flow of new stock. You can also use this method to avoid costly overstocking (where you have more inventory than you can sell or store) or stockouts, where you have too little stock and can’t fulfill customer orders. Here are the steps used in replenishing inventory:
1. Monitor inventory levels
The stock replenishment process begins by tracking and monitoring existing inventory levels within your business. Many businesses use inventory management software for these tasks throughout the entire supply chain.
2. Forecast customer demand
This step involves the analysis of sales trends, historical data, seasonal variations, and market fluctuations to predict future demand for each product. Such forecasting helps you determine how much inventory needs replenishing, and when that replenishment should happen.
3. Set reorder points
Reorder points are the inventory levels at which new orders should be placed. When current stock reaches these set replenishment parameters, it triggers a restocking order. You can create reorder points, and the reorder quantity for each item, based on multiple factors, like supplier lead times and historic market demand.
4. Create purchase orders
When inventory reaches the predetermined reorder point, it’s time to generate purchase orders to suppliers or manufacturers. Include details such as the SKU and quantities of ordered items, delivery dates, and any specific requirements for the goods or supplier. Your inventory management software can automatically create purchase orders for you.
5. Approve and process orders
Once your company management approves the replenishment order, the order fulfillment process can begin. Suppliers and manufacturers receive orders and then begin the process of shipping out products, thus allowing your business to replenish inventory.
6. Receive new stock
After a built-in lead time—which can vary by supplier, industry, and other factors—new inventory will arrive from manufacturers and suppliers. Typically, a representative of your business will sign off to confirm receipt of the products.
7. Update inventory levels
With new inventory received, you’ll update your databases to reflect the most up-to-date stock level for all items. Maintaining accurate inventory levels help to ensure that you have enough stock to fulfill customer orders during periods of high demand.
8. House new stock in physical storage locations
Typically, replenished inventory is housed in the primary storage facilities. For some businesses, that will mean the shelves of retail stores. For ecommerce businesses, it’s more likely to mean warehouses.
9. Optimize inventory levels for future replenishment planning
Successful businesses evaluate their inventory replenishment methods on an ongoing basis as they strive for continuous improvement. You can use data points from your current restocking operations—such as customer demand, lead times, and other factors—to develop the most effective stocking level strategies for the future.
Common stock replenishment methods
In both the ecommerce space and in brick-and-mortar stores, retailers employ multiple inventory replenishment strategies to manage their stock efficiently. Here are four of these methods:
Lean time replenishment
Lean time replenishment involves restocking inventory during specific times or seasons when demand is lower, but when still anticipating higher sales periods. This method is popular when restocking seasonal inventory. For example, a snowboard company may choose to replenish its stock during the summer, when there’s less delay in fulfilling orders. This also helps it ensure new stock will arrive in time for the winter sales surge.
The top-off approach involves replenishing inventory when it reaches a predefined level. This helps ensure products are consistently available without excess stock, which usually comes with high carrying costs. For instance, a bedding manufacturer may set reorder points for the raw materials used in creating duvets or bedsheets. When existing inventory hits those reorder points, the company tops off its existing supply of materials. If you are a retailer with products experiencing a high volume of sales, for example, this strategy may be a good fit.
In the periodic method for inventory replenishment, stock is replenished at regular intervals, regardless of current inventory levels or demand fluctuations. This is one of the easiest methods to implement, but it does not necessarily replenish stock at an optimal rate. You can expose your business to both overstocking and stockouts if you order periodically without regard to customer demand.
This strategy involves restocking inventory as soon as specific triggers, such as customer orders or real-time analytics and sales data, indicate the need. Many ecommerce businesses use on-demand replenishment due to the level of efficiency and cost effectiveness of managing inventory levels.
Best practices for replenishing inventory
- Use inventory management software
- Keep safety stock on hand
- Use agile replenishment methods
- Use hard data over gut instinct
- Aim for continuous improvement
Whether you’re new to retail commerce or have been selling consumer goods for decades, it helps to follow five key guidelines when designing your stock replenishment operations:
Use inventory management software
Invest in robust inventory management software systems that offer real-time tracking, automated alerts for low stock, and integration with sales data. These systems streamline the replenishment process, reduce human errors, and provide insights for better decision-making.
Keep safety stock on hand
Sometimes manufacturers and suppliers make mistakes that can cause costly delays in their own order fulfillment. In order to maintain customer satisfaction and avoid lost sales, keep a buffer stock of your most popular merchandise on hand. Even when your supplier offers standard lead times, safety stock can still help you weather an unexpected spike in customer demand.
Use agile replenishment methods
Adopt flexible replenishment strategies that can easily adapt to changing market conditions and consumer behavior to best meet your needs. Balance between different replenishment methods to cater to varying product demand patterns and customer preferences.
Use hard data over gut instinct
It’s best to utilize comprehensive data analytics to steer your replenishment strategies. By leveraging sales trends, historical data, seasonality, and market insights, you are better able to forecast demand accurately. Embracing a data-driven approach can help you set reorder points, identify fast-moving items, and optimize inventory levels. It also gives you a more accurate picture of your inventory operations compared to gut instinct.
Aim for continuous improvement
Regularly monitor and evaluate the effectiveness of replenishment strategies. Analyze key performance indicators (KPIs) such as inventory turnover rate, stockout frequency, and order fulfillment time. Use this data to iterate and continue to improve replenishment processes.
Stock replenishment FAQ
What is an example of inventory replenishment?
An example of inventory replenishment is a pottery website ordering new vases from its supplier to have ample supply to fulfill upcoming customer orders.
When should you replenish stock?
You should replenish stock when inventory levels drop below a predetermined threshold or when demand is anticipated based on sales trends and forecasting.
What does replenishment mean in retail?
Replenishment in retail refers to the process of restocking inventory to maintain adequate levels for customer demand and to prevent stockouts.