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.

In retail operations, store replenishment is often overshadowed by higher-profile activities such as buying, merchandising and marketing. Yet the efficiency of a retailer’s store replenishment operation has a major impact on profitability. The accuracy and effectiveness of store ordering affects 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, while larger hypermarkets have tens of thousands, 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 amount to savings of several percentage points of total turnover. Improving your own replenishment system gets results fast – often much faster than wide-ranging 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.

Optimised store replenishment isn’t just a ‘nice to have’

The more products and SKUs a company has to handle, the bigger the return it will see from getting the store replenishment process right. If there are several warehouses or stores to manage, the gains multiply further. Whether a retailer handles groceries, building materials, toys, books, car parts, garden products or gifts, almost every company sees a return within months from optimising their store replenishment processes.

For companies that manage a large number of 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 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.

A competent store replenishment system calculates the safety stock level for each SKU separately and sets them to meet service level targets as efficiently as possible, taking into account the predictability of demand, delivery lead time and delivery accuracy of each item. This improved accuracy makes it possible to increase service levels and inventory turnover simultaneously.

Pick the right technology
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 round. These systems must be 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.
That said, to ensure quick and meaningful results, 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, taking into account 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

Make optimised store replenishment a reality
Optimising a replenishment operation means more efficient product replenishment, more profit and a more efficient supply chain. But when it comes to store replenishment, many food retailers aren’t following best practice at the moment.

A good replenishment system can evaluate your replenishment needs faster, more accurately and more cost-effectively than even a fine-tuned purchasing team. Computers track data better than people, while people can often solve complex problems better than computers, especially when the problems have a human dimension.

Liberate your managers from the drudge of data crunching so they can properly use their expertise, better support their colleagues and focus more on customers and their needs and expectations.