Effective replenishment planning is about having the right product in the right place at the right time to meet customer needs.
Due to increased business complexity and volatility in demand, as well as the need to tightly control inventory levels, replenishment planning can be a deceptively complicated undertaking. Many organisations struggle to understand where to best place inventory (for example, manufacturing plant, store, DC or supplier), as well as when and in what quantities to re-order, in order to respond to customer needs.
When not managed effectively, these factors can manifest themselves as:
- Out-of-Stocks and poor service levels
- Slow moving inventory; high obsolescence costs
- Noise and high expedite costs; poor supplier relationships
- Lack of awareness of issues or where to focus planning time & effort
Whether a retailer, distributor, manufacturer or importer, effective replenishment planning allows organisations to meet customer service goals while simultaneously achieving inventory investment targets.
By integrating customer demand to purchasing requirements to inventory investment, effective replenishment planning positions the right inventory where and when it is needed in order to best meet customer demand.
Replenishment planning can also provide up to two years forward planning visibility, enabling for the effective management of key risks and events such as facility capacity, shut-downs, and seasonal activities.
GRA’s view is that replenishment planning should be proactive, dynamic and predictive. These are desirable characteristics because:
- Proactive – action should be based on future needs, not past consumption. Our approach considers all sources of future demand, including customer, dependent and Bill of Material demand, in order to determine demand on an item.
- Dynamic – the appropriate replenishment activity should be determined every time inputs, such as demand, change or are replanned.
- Predictive – the replenishment plan should provide visibility to the business of future requirements.
We also advocate an exception based view of replenishment activity – distinguishing between balanced items requiring no action, items requiring regular reordering activity and items requiring actions to resolve over or under stocks – to enable focused, value-add planning activity.
As such, GRA’s approach involves working with our clients to develop the capabilities required for optimal replenishment planning.
This may include:
- Training and mentoring team members
- Building and refining planning policies and processes
- Reviewing and implementing system capabilities
- Defining the KPIs required to measure and understand performance
- Improving the inputs to replenishment planning, for example inventory parameters such as order quantities and safety stocks
The following are outcomes of this approach:
- A methodology appropriate to every organisation for generating the optimal inventory replenishment plan
- Improved planning capability; planning effort focused on value-add activity
- A framework for managing trade-offs such as low-stock or capacity constrained situations
- Improved ability to anticipate future needs and highlight risks
- Reduction in expediting and obsolescence costs
- Integration of replenishment planning with other key activities
- Increased service levels up to 99.9%
- 20-40% inventory investment reduction
- Meet customer service goals and inventory investment goals
- Compressed cash-to-cash cycles
- Improved capacity and fixed asset utilisation
- Improved relationships with suppliers and customers
- Integration of business strategy and operational practices
View GRA's infographic on Replenishment Methodologies.
– BACK TO CONSULTING
"We saved $14 million in six months... here are the graphs. We're used to being promised these kinds of numbers; we're just not used to having them delivered."
– Wing Commander, Royal Australian Airforce (RAAF)
- 20-40% inventory investment reduction
- increased service levels ranging up to 99.9%
- 10%-15% reduction in supply chain operating costs
- 5%-20% spend management savings
- the ability to fund business initiatives from operating cash flow (OCF) improvements
- improved return on capital employed (ROCE)
- a minimum 3:1 ROI (10:1 to 30:1 typical)