Updated: Feb 21
D2C businesses need a solid inventory replenishment strategy because it can help teams avoid costly supply chain issues like out-of-stocks or overstocks. Read on to learn more.
Business growth is slow despite the heavy investment on customer acquisition. You have probably experienced this even after a period of high demand for your products.
Marketing is always a priority for D2C businesses to position their brand and generate demand. But it is crucial to equally prioritize fulfilling the demand as well because if left unchecked, it can spell trouble in the form of stock outs.
Read on to learn more 👇
DO YOU KNOW THE TRUE COST OF A STOCK OUT?
A stock out is not just a lost customer, it also has a long lasting impact on your brand’s perception.
You are not just losing out on sales now, but potential customers in the future as well. It does not end there.
Out-of-stocks can lead to cash flow problems due to backorders being generated and excess inventory being piled up which bleeds capital.
The biggest global businesses spend millions of dollars in planning for these reasons. To go out-of-stock for them, is to hinder business growth.
In today’s hyper competitive market, an out-of-stock is just as costly for your e-commerce business as well.
Although it is not feasible for you to spend resources and hire an army of planning teams, what you do is start by understanding replenishment and setting up a good replenishment strategy in place.
UNDERSTANDING INVENTORY REPLENISHMENT
Inventory replenishment is the process of ensuring the availability of the right amount of the right stock at the right place at the right time. Replenishment is a dynamic process that directly impacts an online brand’s ability to meet customer demand, fulfill orders, and turn a profit.
Your replenishment strategy can even determine how much you spend on fulfilling your orders and drastically bring down costs. Inefficient replenishment practices like simply overstocking to fix the problem can have unintended consequences in the future.
There’s a thin line between overstock and stockout. The ultimate goal of a good replenishment strategy should be to meet demand at all times without bleeding money by overstocking.
HERE ARE SOME EFFECTIVE INVENTORY REPLENISHMENT METHODS YOU CAN ADOPT:
ABC Analysis: Determine which products to prioritize and determine the right stock levels for each item. Items are categorized by A- High Profit margin, well selling; B- Mid range items; C- Low profit margin
Determine Accurate Lead Times: Knowing the accurate lead time of the vendor (when the order will be fulfilled by supplier) helps in understanding the frequency of replenishment. Waiting too long might lead to stockout and not waiting long enough will lead to excess costs.
Replenish from within the business: Check if it’s possible to redistribute inventory from other locations before reordering. This frees up working capital. Service levels can be fulfilled without excess inventory purchasing costs.
Reorder Point Strategy: By setting up a minimum inventory or stock level for a specific product and with the reorder point formula (demand during lead time + safety stock) you can know when it's time to reorder inventory and how much to order. This requires continuously monitoring inventory in real time. All products have different reorder points and should be calculated accordingly.
Top off strategy/lean time replenishment: Replenish when operations are slow and bring stock up to level. Taking advantage of slow demand periods to top off inventory levels and improve efficiency during peak periods. With this you can maintain high inventory turnover rate without encountering stock outs for fast moving SKUs.
Demand Strategy: Replenishment based on demand. Restock/reorder only to fill orders. Safety stock is required.
Note: Having the same stocking policies for all SKUs will not work. A good replenishment practice involves dynamically changing policies for different SKUs based on demand phases and supplier lead times and storage space utilization.
We know this can be overwhelming. Keeping up with volatile demand and planning replenishment is a hassle even for big global companies with planning expertise. But technologies like AI and ML have made it simple for anyone without any prior expertise in planning to have a dynamic inventory planning system with a few clicks.
TO MAKE INVENTORY REPLENISHMENT EASY, START HERE:
Start with Accurate Forecasting-- A good forecasting process is the number one fix to all your inventory problems. Speedy, Accurate daily/weekly forecasting at granular levels with real time demand signals will give you an idea of the demand for all your products, even during volatile times. A simple forecasting tool like Crest can give you visibility into present and future demand for all your products with a few clicks.
Take advantage of Automation-- Automate your redundant tasks like forecasting and replenishment. Your time and resources are precious, so let tools like Crest automate processes like Demand Forecasting, Inventory Planning and Replenishment with incredible speed and accuracy. With just a few simple clicks, you can stay ahead of your demand and fulfill orders with minimum costs.
Start eliminating excess inventory-- By holding excess inventory, you can be putting your replenishment plans in danger. Excess inventory bleeds capital and storage space, and can even end up turning obsolete which is an even bigger loss. With Crest, you will know exactly how much to stock. This will help you reduce wastage and grow your bottom line.
It is difficult to plan inventory and meet demand. However, with tools like Crest, you can now have planning technology equivalent to an army of planners at your disposal. By using Crest to anticipate consumer demand and plan inventory, you can cut costs by up to 50% and reduce out-of-stocks by up to 80%.