Supply Chain Management, CPG KPIs & Reporting

Inventory Replenishment: Definition, Explanation, & Best Practices

Shoppers know the disappointment of planning a shopping trip around a specific product they’ve come to know and love just to arrive at an empty shelf, and the brands that stock those shelves also know how much these experiences can not only cost them in lost sales, but also lost brand loyalty and trust on behalf of the customer. That’s why having a robust inventory management protocol in place is so critical for growing brands. 

In this post, we focus on one aspect of inventory management — inventory replenishment — and provide you with information on how to improve your replenishment process using best practices and incorporating replenishment data. 

 

Inventory Replenishment Definition

First, let’s be sure to fully understand what inventory replenishment is and the role it plays in inventory management. Inventory replenishment is the process by which brands take the necessary actions to bring products down the supply chain methodically to maintain stock levels. This means moving product from reserve storage, usually a large warehouse that holds products directly from the manufacturer, into primary storage, which is the last place the product goes before it reaches the store shelf. 

 

 

 

Why is Inventory Replenishment Important?

A solid inventory replenishment strategy is vital to businesses as it can help teams avoid costly supply chain issues such as out-of-stocks or overstocks. As we mentioned earlier, out-of-stocks not only result in lost sales but can also be a huge hit to customer loyalty and trust in a brand. They also can jeopardize your security on the shelf, as neighboring brands may begin to encroach on any empty space.

Overstocking, on the other hand, can be equally problematic for your business. For starters, CPG companies know that having excess inventory can cause obstacles to new product rollouts, brand redesigns, or in the case of food and beverage brands, could push products beyond their “sell by” date and render them unfit for purchase. Additionally, overstocking can create confusion within the supply chain. If there is a lapse in communication about any backstock before an order for replenishment is placed, both brands and retailers could suffer losses in order to manage the excess product. 

 

Inventory Replenishment Best Practices

Now that we have gone over what inventory replenishment is and why it matters, let’s talk about how to have the strongest approach to your inventory replenishment strategy. 

 

Utilize Replenishment Data

You probably won’t be surprised to hear that one of the best ways to optimize your inventory management is by using data to help you make better, more informed decisions. Point of sale data from your retail locations can be a powerful indicator of how your replenishment process should shake out. All of your accounts are different, and effectively managing the data from each one will help you to keep them all stocked to the appropriate level.

Data from each of your accounts will allow you to gain better insight into things like how quickly your product moves off the shelves, if your reorder frequency aligns with demand, which units are selling faster than others, and even if certain outside factors such as holidays or competitor activity are affecting shelf velocity. Analyzing this data empowers your team to achieve better demand forecasting and improve your inventory management. .

Why are these metrics so crucial to stock replenishment? Accurate demand and lead time forecasts lessen the chance of a stockout or backorder, while also reducing the likelihood that your retailers will receive more of your product than they can stock.

 

Improve Visibility in the Field

When it comes to inventory management, what you don’t know can certainly hurt you. That’s why improving managers’ visibility into the field is so crucial to an optimized replenishment strategy. When managers, reps, retailers, and distributors are all on the same page, mistakes within the supply chain are far less likely to occur. 

One way of improving visibility in the field is to employ tools specifically designed for inventory management and retail execution to foster better communication between the field and the back office. Tracking data across multiple different programs and applications can get messy and lowers your team’s ability to keep accurate, easy-to-understand records. Streamlining the process to track your data in real-time with the use of technology gives your brand an indispensable leg up on your competitors that are still using generic tools to get things done. 

Another way of increasing visibility is to prioritize stronger communication between reps and retailers. With a firmly established connection comes open lines of communication along which any hiccups in inventory management can be addressed sooner rather than later. You can also count on strong retailer relationships to create more accurate lead time forecasting, which is the time it takes for a new order of your product to actually reach the shelves. It’s affected by things like how quickly your brand fills orders or transportation time, but also the inner operations of any individual store. Having an improved understanding of how each store operates on a day-to-day basis will empower you to make more accurate inventory replenishment decisions. 

 

 

Monitor and Adjust Your Replenishment Approach

As time goes on and your team sees different patterns and trends emerging from in-store data, you will have the opportunity to use that analysis to better plan for the future. Including your approach to inventory replenishment in a cycle of continuous improvement will help you accurately identify what is working and what needs to change. If your distributors have been late with deliveries, that will affect your lead time forecasts. If your product is selling more or less than you anticipated, it’s time to update your demand forecasts. It’s not enough to simply collect  data — you must constantly be using the resources at your disposal to iterate and improve your process.

Be sure to include other actors in your supply chain, from the manufacturers all the way down to the store employees, in this process.Collecting information from multiple different sources is critical in order to paint a full picture of your inventory replenishment process. When you have all the information, you are much better equipped to take action that makes a difference.

Melissa Sonntag

Melissa is a recent graduate of Northeastern University and a content marketing specialist at Repsly, Inc. She is committed to applying her skills in order to bring value to Repsly readers and customers. Outside of work, Melissa enjoys practicing yoga, making music, and anything dog-related.

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