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10 Retail Replenishment Musts

  • Wambui N. Gathu
January/February 2017

Replenishment managers are responsible for ensuring that items are replaced the moment they leave shelves—whether they have been purchased by an end customer or removed by a retail professional because of damage or age. At the heart of this effort is inventory management, as replenishment managers walk that very thin and precarious line between stockout and oversupply.

When replenishment managers arrive at their desks each morning, their first task is to check the sales and inventory data from the previous business day as well as any problems that might have arisen as a result of the previous business day’s transactions. Key issues discovered should be prioritized by time sensitivity and business impact in dollars. For example, is there a top-selling item that has low in stocks? If so, the company could be losing millions of dollars in sales because that item is missing from store shelves. Replenishment managers must identify the underlying cause of this imbalance—whether a supplier shortage, a replenishment software issue, a breakdown in the supply chain, or an inaccurate inventory count. Then, they have to find and implement a solution.

Once the business position is known (and any issues are resolved), then the replenishment process begins. Replenishment managers now embark on their number-one job: correcting and adjusting the forecast. The following are essential when working toward this goal.

  1. Evaluate the key performance indicators (KPIs) tied to strategy, performance, and stakeholders. For replenishment managers, these usually are in-stock status; Customer Relations ratio, or fill rate; and arrival date. According to the APICS Dictionary, stock describes items in inventory or stored products or service parts that are ready for sale. Customer Relations ratio is defined as “a measure of delivery performance of finished goods.” The arrival date is “the date purchased material is due to arrive at the receiving site.”
  2. Know each item’s rate of sale. Let’s say a new item is going to be sold in 500 retail stores, and it is anticipated that two units will be sold per store per week. Therefore, the weekly forecast would be 1,000 units. Most order systems are automated, so they will trigger an order for an item when it has a certain number of units left on the shelf. It is the duty of replenishment managers to adjust this number depending on the business need. Note that the unit count may be set higher than shelf capacity if, for instance, the item is on a promotional display and the system needs to order for the shelf capacity and the promotion.

    Sometimes systems have glitches, and over-ordering happens. This is something that must be corrected right away. Upper management, suppliers, distribution centers, and all other stakeholders should be informed not to execute the order. Failing to order enough is also something replenishment managers must address quickly. Suppliers need to watch their orders daily and escalate any issues of missed orders to replenishment managers.

    In addition, when a merchant decides to change the makeup of an item’s stock keeping unit (SKU), there will be a time of transition from the old items to the new ones. Usually the timing is set, and it is the duty of replenishment managers to work with the suppliers in order to ensure the new items are ready for the shelves. If suppliers run into delays, replenishment managers should escalate the issue to the merchant and upper management.

  3. Work with the merchant to achieve goals. Perhaps a buyer decides to carry a certain item in order to gain market share or as a shopping-traffic incentive. Replenishment strategy must be aligned to this plan in order to achieve shared objectives. Shelf capacity also is a key consideration. In retail, shelf space is limited, so every manufacturer is waging a battle to win a fraction of the real estate. Even once your item has found placement on a retailer’s shelf, a battle for consumer eyeballs ensues. Replenishment managers must bend over backwards to ensure that their hard-earned shelf space is not empty when the customer comes along. To do this, determine what number of units constitutes a good presentation quantity from the consumer’s point of view and, most importantly, how many units constitutes safety stock.
  4. Keep abreast of shifts in the supplier world, and have an honest working relationship with suppliers. Suppliers are being acquired, changing carriers, and moving manufacturing locations all the time. All of these changes affect the flow of the supply chain and cause inventory disruptions. A replenishment manager must adequately prepare for all such events. Use the previously mentioned KPIs to judge the effectiveness of relationships and whether suppliers are filling orders at 100 percent. If they are not, find out why, and fix the issue. Perhaps consider working with your suppliers to optimize transportation by conducting a semi-annual lead-time audit.
  5. Be aware of supplier lead times, and identify proper order cycles. Replenishment managers should understand supplier lead times in order to better plan when items will reach the shelf. This varies depending on the importance of an item, where it is manufactured, and the mode of transportation. The APICS Dictionary defines an order cycle as “the progression used by a company starting with receipt of a customer’s order and ending with delivery to that customer.” Fast-moving items generally should be ordered from suppliers on a daily basis. Slower-moving items can be ordered once a week. This helps replenishment managers plan the necessary amount of inventory to maintain at a site.
  6. Learn to identify seasonality in the business, and keep an eye on promotions. Some items are seasonally relevant, so replenishment managers must organize inventory during each pick season to cover market demand. Other products may be in higher demand during certain shopping seasons. Replenishment managers should collaborate with suppliers so they are ready to supply higher-than-usual amounts of inventory at these times. All stakeholders—including production, transportation, and retail professionals—must be looped in to this process and prepared to support the surge in demand.

    Promotions also cause variability in demand. Replenishment managers therefore must work together with marketing professionals in order to plan for the anticipated demand. Consider when a promotion will begin, how long it will last, what sales lift marketing professionals anticipate, and if suppliers are ready to deliver the extra inventory. All of these considerations must be aligned in order to avoid stockouts.
  7. Understand how items flow through the supply chain. Direct-to-store items are those that move from the factory to the retailer. Cross-docking is used to get items from the manufacturer to consolidation or a sorting center and then to the retailer. And staple-stock items are defined as those that travel from the manufacturer to warehouse storage before going on to the retailer. If replenishment managers want to ensure that the right number of items are on the retail shelf at the time when they are needed, it’s necessary to calculate the lead times for each of these distinct distribution methods. Then, use that number to ensure a continuous supply.

    Accurate lead times also require an understanding of the various modes of transportation, whether via intermodal, shipping, air, rail, truck, or carriers such as FedEx and UPS. And watch the weather: Road conditions are critically important, so replenishment managers must keep abreast of incoming inclement weather and prepare ahead of time.
  8. Identify the top items, and keep them stocked. For this endeavor, it’s wise to use Pareto’s law, which states that a small percentage of a group accounts for the largest fraction of its impact. For replenishment managers, this translates to 80 percent of sales coming from 20 percent of items. Keep these SKUs well stocked to protect the business’s market share.
  9. Maintain an accurate forecast. Replenishment managers own the forecast, and it must accurately reflect the need in the market and avoid surpluses and out of stocks. Consider implementing a collaborative planning, forecasting, and replenishment (CPFR) process to align supply and demand. The APICS Dictionary defines CPFR as follows: "A collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers. Collaboration encompasses business planning, sales forecasting, and all operations required to replenish raw materials and finished goods.”
  10. Keep an eye on item maintenance. Although this is not the direct responsibility of replenishment managers, data maintenance directly influences the effectiveness of the work they do. In some companies, order specialists create and maintain items; in others, item creation is the purview of the data-maintenance team. Either way, replenishment managers need to have a good rapport with these teams because the work will suffer greatly if items are not set up correctly in the system and thus cannot be tracked throughout the supply chain.

Replenishment managers play critical roles in their supply chains. Too many stockout and oversupply situations can have a detrimental effect on a business, so a successful replenishment manager is a critical company asset. Following these guidelines is a proven method for achieving the right inventory balance to meet customer demands.

Wambui N. Gathu has worked as a replenishment manager at Wal-Mart Stores and, more recently, Mars Chocolate North America. She currently is pursuing her APICS Certified Supply Chain Professional designation. Gathu may be contacted at gathuwambui@gmail.com.

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Comments

  1. Pavan Kulkarni February 23, 2017, 12:24 AM
    Very practical guide to inventory replenishment.
    There are some more points which affects demand ,for example if one distributor  is out of stock of some items that will create demand in another distributors ,Any idea how to fix this issue ,because we don't have direct control on this .

    Regards,
    pavan
  2. Wambui February 24, 2017, 04:28 AM
    Thank you Pavan for your comment. In the retail world, suppliers or distributors have come-up with quota systems to deal fairly with their customers. If there is a short supply of a particular item in the market, it is divided among the various customers depending on their demand ratios. Unfortunately, this is not an ideal situation since the whole demand is not fully met.
  3. Hussein gamil May 13, 2018, 08:14 AM
    Actually very well words and very practical i read it and really i got a great experience from it.

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