Stock replenishment or inventory replenishment refers to the process of moving stock along the supply chain to ensure sufficient inventory is in stock to meet demand. Efficiently replenishing inventory is a critical process as it directly impacts customer satisfaction and a company’s profitability.
There are four main methods businesses use to restock their inventory to meet demand. These are:
Reorder Point Strategy
It is also Min/Max Strategy. Reorder point is the signal or point at which the inventory needs to be replenished. It is the minimum amount of a product or item which a business must hold in stock. When the stock of that item falls below that amount, the item should be reordered.
In this method, stocks are reviewed continuously, and when the stocks fall below predetermined levels, a replenish order is triggered. Placing an order for stock when the inventory reaches reorder point ensures the new stock arrives before the company runs out of stock.
Reorder point strategy tends to work best for companies that market fast-selling products or products with fluctuating demand. Establishing a point for reordering simplifies the process, triggering reorders when there is ample lead time to restock, and you have safety stock in hand.
Having minimum and maximum inventory limits prevents you from understocking or overstocking items.
Periodic Point Strategy
In the Periodic Point strategy, businesses will set inventory intervals for restocking. Businesses will examine stock levels weekly, monthly to determine in-time replenishment.
If the inventory is running low, then an order to restock the item will be placed, and if inventory is adequate, no order would be placed. But there is a rule in periodic point strategy, and that is even if the stock runs low before the specified time interval, a firm will not place an order to restock until the review point.
Another name for this is the Lean Time Replenishment strategy. This strategy uses slow demand periods to top off the inventory in its respective storage locations. It helps to maintain a high inventory turnover rate without encountering stockouts for pickers.
Top off replenishment maximizes utility during downtimes for more efficient performance during high-demand periods. During slow times the inventory is topped off based on the minimum and maximum inventory limits like those in reordering point strategy.
It is the best-suited inventory replenishment strategy for fast-moving SKUs with short picking windows. Optimizing the supply chain during a slow demand period prepares them to manage high demand periods efficiently.
When current inventory cannot meet consumer demand, merchants who use this strategy will place a restock order.
The challenge in this strategy is to carefully plan to ensure enough quantity is in hand to meet the demand. In the ever-changing retail industry, it is crucial to monitor the market and forecast demand correctly to ensure optimum inventory is in stock to meet demands.
For startups and small businesses, using backorder to restock items on demand is extremely important, as they can not shoulder the cost of overstocking.
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The goal of an effective replenishment strategy is to align inventory levels with demand and supply. Forecasting demand and monitoring the inventory levels can help you to avoid stockouts and efficiently meet demand.