Page 42 - December 2022/January 2023 #177

RLI RETAIL INSIGHT
Benefits of

Replenishment

In this month’s Retail Insight, Mikko Kärkkäinen, Co-Founder & Group
CEO of RELEX Solutions takes some time out to discuss with RLI the
advantages of stores replenishing their stock and why it is so pivotal.

n retail operations, store replenishment is often overshadowed by A competent store replenishment system calculates the safety stock
higher-profile activities such as buying, merchandising and marketing. level for each SKU separately and sets them to meet service level targets
IYet the efficiency of a retailer’s store replenishment operation has as efficiently as possible, taking into account the predictability of demand,
a major impact on profitability. The accuracy and effectiveness of store delivery lead time and delivery accuracy of each item. This improved
ordering affects sales in terms of shelf availability and impact handling, accuracy makes it possible to increase service levels and inventory
storage and wastage costs in stores and other parts of the supply chain. turnover simultaneously.
Given that even small retail outlets can have thousands of items, while
larger hypermarkets have tens of thousands, it’s obvious to retail executives Pick the right technology
that accurate, item-level control is virtually impossible to achieve with Every company is different with its own supply chain, cost structure
manual store ordering. Over the last decade or so, automated and system- and management style. Replenishment systems need to fit the company
assisted replenishment has become the default simply because the results rather than the other way round. These systems must be able to be
are so dramatic. customised to support the specific features of each supply chain – and
There are significant gains to be had from optimising the store the system’s supplier must understand the customer’s business in all
replenishment process that often amount to savings of several percentage its complexity.
points of total turnover. Improving your own replenishment system gets That said, to ensure quick and meaningful results, an efficient
results fast – often much faster than wide-ranging development projects replenishment system must include certain essential features:
involving multiple parties or new technology.
To do so, retailers must optimise demand forecasting, inventory • Support automatic demand forecasting at the SKU level and be
management and the setting of order cycles and order quantities by making able to automatically factor in periodic or seasonal variations as well as
them more systematic and more accurate. They must also increase the level trends and changes in demand
of automation in routine areas of store replenishment so specialised teams • Calculate efficient safety stock levels at the SKU level, taking into
can focus their expertise on areas that require closer attention. account the predictability of demand, delivery lead times and delivery
accuracy
Optimised store replenishment isn’t just a ‘nice to have’ • Cost-based optimisation of order quantities and order cycles at the
The more products and SKUs a company has to handle, the bigger the supplier or product level
return it will see from getting the store replenishment process right. If there • Able to combine automated routine orders with order suggestions
are several warehouses or stores to manage, the gains multiply further. for specific important items, as well as automatic exception management
Whether a retailer handles groceries, building materials, toys, books, car
parts, garden products or gifts, almost every company sees a return within Make optimised store replenishment a reality
months from optimising their store replenishment processes. Optimising a replenishment operation means more efficient product
For companies that manage a large number of SKUs, one of the most replenishment, more profit and a more efficient supply chain. But when
effective ways of making store replenishment more accurate, efficient it comes to store replenishment, many food retailers aren’t following
and cost-effective is to use a replenishment system tailored specifically to best practice at the moment.
the business’s operations. When thousands, or even millions, of different A good replenishment system can evaluate your replenishment
products need to be managed, manual ordering is inevitably highly labour- needs faster, more accurately and more cost-effectively than even a
intensive, costly and simply impractical for the huge quantities of data to fine-tuned purchasing team. Computers track data better than people,
be analysed effectively. This in turn leads to errors and increased costs. while people can often solve complex problems better than computers,
In contrast, an automated replenishment system never stops working. especially when the problems have a human dimension.
It constantly monitors stock, sales and demand. Human errors, Liberate your managers from the drudge of data crunching so they
such as forgetting to place an order, are eliminated. An automated can properly use their expertise, better support their colleagues and
replenishment system also factors in forecast changes in demand and focus more on customers and their needs and expectations.
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
recognises sales frequency, profit margin, or sales value means a company
can manage its inventory in a way that best ensures long-term profitability.
Inventory turnover is also improved because the replenishment system
can manage safety stocks more accurately than any human buyer. With
manual inventory management, it is impossible to evaluate the safety
stock requirements of each SKU accurately. Instead, the items must be
managed as groups. If the retailer needs to increase overall service levels,
it typically enlarges the inventory buffer for a wide range of items, many of
which will be overstocked as a result.

Bed Bath & Beyond aims to reduce store replenishment
time from 35 days to 10.