The benefits of optimising your store replenishment process

In retail operations, store replenishment is often overshadowed by higher-profile activities such as buying, merchandising, and marketing. And yet the efficiency of a retailer’s store replenishment operation has a major impact on profitability.

Mikko Kärkkäinen, Co-founder & Group CEO of RELEX Solutions explains why the accuracy and effectiveness of store ordering affect sales in terms of shelf availability and impact handling, storage, and wastage costs in stores and other parts of the supply chain.

Given that even small retail outlets can have thousands of items, it’s obvious to retail executives that accurate, item-level control is virtually impossible to achieve with manual store ordering. Over the last decade or so, automated, and system-assisted replenishment has become the default simply because the results are so dramatic.

There are significant gains to be had from optimising the store replenishment process that often amounts to savings of several percentage points of total turnover. Improving your own replenishment system gets results fast, often much faster than development projects involving multiple parties or new technology.

To do so, retailers must optimise demand forecasting, inventory management, and the setting of order cycles and order quantities by making them more systematic and more accurate. They must also increase the level of automation in routine areas of store replenishment so specialised teams can focus their expertise on areas that require closer attention.

For companies that manage many SKUs, one of the most effective ways of making store replenishment more accurate, efficient, and cost-effective is to use a replenishment system tailored specifically to the business’s operations. When thousands, or even millions, of different products, need to be managed, manual ordering is inevitably highly labour-intensive, costly, and simply impractical for the huge quantities of data to be analysed effectively. This in turn leads to errors and increased costs.

In contrast, an automated replenishment system never stops working. It constantly monitors stock, sales, and demand. Human errors, such as forgetting to place an order, are eliminated. An automated replenishment system also factors in forecast changes in demand and adjusts the orders accordingly, increasing service levels and sales while improving customer satisfaction.

Furthermore, a well-calibrated replenishment system classifies products individually and assigns different attributes to them. This lets the retailer set higher service level targets for those products that customers consider important and purchase most frequently. Using a system that recognizes sales frequency, profit margin, or sales value means a company can manage its inventory in a way that best ensures long-term profitability.

Exception management can also be made more effective through system support. A good replenishment system can anticipate product shortages, late deliveries, seasonal products (where there’s a risk of excess stock), and other exceptions faster than any human. In many cases, the system can respond to the exceptions automatically and, in others, flag them to managers for expert attention.

Every company is different with its own supply chain, cost structure, and management style. Replenishment systems need to fit the company rather than the other way around. These systems must able to be customised to support the specific features of each supply chain, and the system’s supplier must understand the customer’s business in all its complexity.

An efficient replenishment system must include certain essential features:

  • Support automatic demand forecasting at the SKU level and be able to automatically factor in periodic or seasonal variations as well as trends and changes in demand
  • Calculate efficient safety stock levels at the SKU level, considering the predictability of demand, delivery lead times, and delivery accuracy
  • Cost-based optimisation of order quantities and order cycles at the supplier or product level
  • Able to combine automated routine orders with order suggestions for specific important items, as well as automatic exception management
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