What is Replenishment?
Replenishment is reordering inventory when a product is running low. It maintains optimal inventory levels so customers can order the required products.
The replenishment process begins with forecasting demand for the product. This forecast is then used to create an order plan for the manufacturing company and a production plan for the supplier company.
Significance of Replenishment in E-commerce Shipping and Logistics
Replenishment paces up the supply chain system by implementing necessary measures. Stores can track the movement of inventory, facilitating sufficient stock in the inventory at any given point.
The significance of replenishment can be seen in its benefits, which are:
- Helps avoid running out of inventory through forecasting, stocking, and reordering methods.
- Reduces carrying costs by maintaining optimal inventory levels.
- Ensure that there is no lag time between orders.
- Reduces stockouts and increases customer satisfaction.
- Informs how much inventory is required at the SKU level at each warehouse based on historical data to decrease shipping costs.
Prerequisites for Replenishment and How It Works
A few factors can be considered as prerequisites for replenishment:
- Accurate demand planning
- Projection of future demand
- Lead time for each item
- Efficient warehouse management system
Replenishment can be carried out using these methods:
- Reorder point method: Companies replenish their inventory once the stocks have fallen below a pre-determined value.
- Top-off method: In the top-off method, inventories are replenished when demands are slow.
- On-demand method: Stocks are replenished based on customer demands.
- Periodic stock replenishment: It replenishes stocks at a set time interval.
Use Case With Replenishment
Consider an online vase seller using the reorder point method to replenish its stocks containing different kinds of vases. It gives the exact number of each vase stock required. Below this number, the stock would have to be reordered.
For instance, if the stock count for the green vase is 40, the company needs to place an order for this stock to replenish the warehouse.