Inventory replenishment system: understand how it works and the results

Inventory provision management is constantly seeking a break-even point. Excessive idle merchandise is not good for business and can cause waste. Scarcity generates out-of-stocks and lost sales. How to have a balanced and healthy inventory in order to achieve maximum operational efficiency? Through an inventory replenishment system.

The Importance of inventory control

Having control over inventory and agility in replenishment is essential for those who produce and for those who sell. In the supply chain, everyone does their part, but in general, manufacturers and retailers work towards the same goal: consumers will always find what they are looking for on the shelf.

For the manufacturer, it is important to understand the output of their products, so that production is conducted at the pace of consumption: without shortages or excesses. Having idle items in inventory—whether at your own or at the retailer’s—is never good business.

Retailers, on the other hand, must have control over their stocks so as not to run out of goods at different points of sale. Sending products from the distribution center to the stores also needs to be very well planned, prioritizing the stores that are at the greatest risk of out-of-stock and enabling agile and efficient logistics.

What is an inventory replenishment system?

An inventory replenishment system is the solution that helps manufacturers, retailers and distributors to have more balanced product levels, according to demand, avoiding shortages and excesses of stored items.

In other words, instead of companies purchasing or distributing products based on guesswork, on spreadsheets or only after negotiations with business partners, this process is now done based on data and using algorithms and mathematical models that perform the demand forecasting calculation and make the inventory replenishment suggestion.

Manufacturers can have at their disposal an inventory replenishment system that aims to provide balance between product storage and consumption, based on actual data, extracted from retailers and distributors. In other words, the manufacturer can conduct inventory replenishment at its business partners much more effectively, sending the right products to the most relevant locations and in the right quantity.

Retailers can benefit from a tool capable of planning the purchase of merchandise and the distribution of products that are stored in the distribution center (DC) to the points of sale, based on metrics and variables that are parameterized to ensure process effectiveness.

When these two tools are used correctly, there is an efficient and automated inventory replenishment system: the supplier knows how the status of their product stocks at the POS and is able to plan the replenishment in an organized way, according to consumption.

Retailers, in turn, have the peace of mind of being able to relocate their stocks as needed, avoiding out-of-stocks, and leaving each store’s inventory at the right level to meet demand.

How does an inventory replenishment system work?

The system performs the replenishment calculation automatically, using algorithms and statistical methods. For this, it considers the variables involved in the process and that the retailer or manufacturer can parameterize in the tool, such as delivery time, expiration date, seasonality, sales history, demand and any other item that needs to be considered to calculate demand forecasting assertively.

Then, the tool adds to this information the events that companies parameterize, such as actions from competitors, exchange rate variations, market research and any item that may influence demand or delivery capacity.

Next, the algorithms do the work and tell you how much to replenish for each item and at each inventory location, in the right amount to maintain healthy levels of stored products.

In the case of retailers, this information is internal to their sales and inventory, so that purchases and distribution among stores are conducted with greater optimization, based on the tool’s suggestions.

In the case of the manufacturer, this information can be their own and that of their suppliers, or data from retailers and distributors. This is because the system can help manufacturers both in the replenishment of raw materials and products at points of sale.

In the case of points of sale, the manufacturer receives inventory and sales information from business partners so that the tool can calculate how much must be sent to each location.

In the case of suppliers, manufacturers share their sales and inventory data to ensure that parts and raw material are at appropriate levels to keep production running smoothly.

Inventory adjustments

Another important point of an inventory replenishment system is the ability to assertively balance existing stocks. This is because the tool tracks sales and makes suggestions for transfers, for example, sending stocks from locations with low demand to places where this product is in high demand.

Omnichannel operation

Omnichannel operation is another highlight, as these systems help companies keep inventories close to where the demand is. Thus, if a multichannel retailer has high online demand for a product in a specific region, that is where the highest inventory levels will be sent, ensuring shorter delivery times and cheaper freight.

Benefits for retailers

By adopting an automated inventory replenishment system, retailers can considerably increase their profitability, as they start working with stocks balanced according to demand.

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Knowing that purchasing and replenishment processes will be automated, the manager can focus on sales, organizing promotions and taking advantage of opportunities to increase sales while reducing inventory.

Benefits for manufacturers

For the manufacturer that is far from the POS, having visibility into the performance of their products is essential to ensure that production (and replenishment) is effective.

It is important that the manufacturer’s inventory is also aligned with consumption. Otherwise, it can produce too little – leaving space for competitors to supply what was missing – or too much, keeping idle products, taking up space.

Understanding how demand is, the supplier produces what is essential to replenish the inventory of its distributors and retailers, ensuring that there is no waste or idle cash, with products gathering dust in the warehouse.

Having this view from the other end of the supply chain is crucial for the manufacturer. And the best part is that, with integrated solutions, everything happens automatically. There is no need for an employee to check or send data. Once the agreement is signed, the smart solutions communicate and take care of everything, making the process more fluid and less bureaucratic.

How to choose an effective inventory replenishment system?

The best inventory replenishment system is the one that meets your needs. However, it is important to keep an eye on some essential features so that the change can be implemented conveniently, without compromising productivity.

Initially, it is essential that the system has a connection with your business ERP. Compatibility between systems makes everything easier, as it does not require complex adjustments or configurations. The integration also allows to automatically collect data as well as sending and receiving orders.

Also, the inventory system must be versatile and capable of handling multiple statistical methods. These calculations will generate the indicators you will use in your activities.

A system that only receives and stores data is already obsolete. Currently, there must be artificial intelligence behind the system, capable of processing information and generating relevant insights for the manager.

Last but not least, an effective inventory replenishment system must also consider events, that is, external factors that may affect sales performance. Prices from competitors and the currency exchange rate, for example, are events that cannot be ignored.

A success story: Super Nosso

The experience we have acquired over more than two decades allows us to deliver tailored solutions for our customers and partners.

The supermarket chain Super Nosso uses the tools that are part of the Neogrid inventory replenishment system since 2018, and since then, it has been seeing excellent results: it achieves greater success rates in the allocation of new products, manages to keep its stocks balanced and presents increasingly lower out-of-stock numbers.

Moreover, with the visibility offered by the solution, the chain is able to better leverage opportunities, conducting product apportionment among stores and paying the necessary attention to really strategic items.

All of this translates into much more efficient management, resulting in more satisfied customers and enabling strategic planning focused on growth and expansion. Learn more at this link.

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