The subject of inventory — particularly its management, strategies, and systems — is a major topic for busy warehouses across the world. This is undoubted because customers have become accustomed to lightning-fast order fulfillment times.
Hence, inventory replenishment is something that should be addressed seriously; it’s a factor that can affect the efficient flow of your products across your entire supply chain.
What Is Inventory Replenishment Policy?
The process of shifting stock items along the supply chain to guarantee sufficient inventory levels to meet demand is known as inventory replenishment. Order fill rates can be attained while inventory carrying costs are kept under control thanks to effective inventory replenishment.
Inventory Replenishment Best Practice to Increase Profits
Stockouts and backorders must be avoided by any company that deals with inventory. Both can be extremely expensive.
Follow these best practices to ensure that your company’s inventory is always able to be replenished as needed:
Right Balance of Inventory
While you’ll need enough inventory to meet expected demand, the last thing you want to do is invest too much money in things that are sitting in a warehouse.
As a result, you’ll need to decide which inventory products to reorder first. An easy way to achieve this is to break inventory into the following categories using the ABC analysis model:
- Items – sell well and are profitable for the company.
- B items are in the middle of the price range and have less demand than A items.
- C items – the least important and in constant demand.
Businesses usually spend their resources on tightening control over A items for optimal availability, before moving on to B items, and finally C items.
However, the ABC classification system is rather simplistic. More sophisticated models can consider demand volume and volatility, as well as the frequency and value of annual usage or profitability. This allows you to organize SKUs into more useful matrixes and create and stock procedures based on them.
Realistic Service Level Targets
You may fulfill orders and assure customer satisfaction with high service levels (or stock availability levels). It’s critical to achieve very high service levels in particular businesses, such as fast-moving consumer goods, where many products have high and consistent demand.
In other sectors, however, where demand is significantly more variable, such commitments are just not feasible.
Having large quantities of every item in your warehouse is often the only option to attain extremely high service levels; however, this isn’t a good idea! Instead, it’s far more sensible to evaluate your stocking policies and use them to create appropriate service level targets.
Well-stocked goods, for example, may have high service level targets, whereas items with low stock levels may have lower service level targets.
Inventory Replenishment Within the Business
Poor inventory replenishment practices can result in an overabundance of products with minimal demand. As time passes, this may become obsolete, necessitating a sale at a discounted price or even a write-off as a bad investment. Because this has a negative impact on profitability, it’s best to act before the stock becomes obsolete. There are two options for doing so.
Identify the health of your inventory. Determine whether you have healthy stock (which has a demand), surplus stock (which you have more than you need), or obsolete stock (which has no demand). You can then change your reorder points, cut your reorder quantities, or use marketing initiatives to increase demand to minimize excess stock.
If you have inventory in many locations, you should be able to see the stock levels of each SKU at each location. With this knowledge, you can re-distribute products within your company. You may observe, for example, that certain sites have excess inventory of specific products while others have shortages of the same SKU. You can reduce your excess stock levels generally and free up working capital by redistributing the goods to locations with higher demand.
Smart Inventory Policies
Every inventory purchasing team’s primary objective is to negotiate the best price for the items they replenish, ensuring that the sell-on price is as profitable as feasible.
However, pursuing the lowest unit price isn’t always the most cost-effective method of acquiring a product. Instead, you must comprehend the complexities of the items you’re purchasing and factor in things like:
- Lead times – how quickly do you need the order?
- Is bulk buying at a discount good value for money?
- What is the best approach to fill orders? What are the minimum and maximum order quantities?
Automate Inventory Replenishment
The inventory replenishment strategies are all aimed at increasing profits. Hence, inventory optimization software is becoming increasingly popular among organizations. Inventory replenishment best practices are supported by optimization software in the following ways:
- Generating statistical demand forecasts automatically
- Inventory classification and prioritization of the stock to carry
- Inventory classification and prioritization of the stock to carry
- Reorder points are calculated and daily ordering schedules are recommended.
Finally, inventory optimization solutions assist in lowering supply chain costs and increasing operational efficiency. Simultaneously, they increase sales prospects by meeting service level targets and assisting in the maintenance of high levels of customer satisfaction.
Conclusion
Running out of raw materials can cause production delays for manufacturers, while wholesalers and retailers may see a short-term decline in sales and longer-term consumer attrition.
On the other hand, keeping too much inventory results in high carrying costs, which can eat into profit margins, and keeping cash in stock might cause cash flow problems
Following the above best practices ensures that your company’s inventory replenishment is as required
