Inventory restocking is a key part of supply chain management, ensuring products are always on hand to meet customer demand.
Effective inventory restocking requires strategic planning, efficient processes and technology to optimise inventory levels and reduce costs.
In this article, you’ll learn about different inventory restocking methods, why a strong process is important and how to optimize your inventory.
What is inventory restocking?
Inventory restocking is the process of replenishing depleted stock levels to meet anticipated or actual customer demand. It’s a vital process to reduce stockouts, minimise overstocking and keep customers happy. An effective inventory restocking method can decrease costs and improve profitability.
Here’s what the process looks like for retailers:
- Assessment: Identify which products are running low and need to be restocked.
- Inventory list: Create a list of items that need replenishing, along with the required quantities.
- Supplier selection: Choose suppliers based on factors like price, quality and delivery time.
- Purchase order: Generate a purchase order detailing items, quantities, and agreed terms. Send it to the supplier.
- Order confirmation: Confirm the supplier can fulfill the order as requested.
- Receiving and inspection: Inspect the received materials for quality and quantity accuracy against the purchase order.
- Inventory update: Update inventory records to reflect the new stock levels.
Methods of inventory restocking
Businesses can use several inventory restocking methods, each with advantages and disadvantages. Here are the most popular methods.
Periodic restocking
Periodic restocking involves restocking inventory at regular intervals, such as monthly or quarterly. It is suitable for small businesses with low order volumes that don’t need to worry about suddenly running out of products.
Periodic restocking is great because it’s easy to implement and doesn’t require detailed analytics. However, it doesn’t account for real-time inventory levels, which can lead to stockouts if demand suddenly spikes.
Top-off restocking
Also known as lean time replenishment, top-off restocking ensures high inventory turnover by replenishing stock to acceptable levels whenever demand dips.
Top-off restocking reduces the risk of stockouts and improves efficiency during peak sales periods. However, it requires you to continuously monitor inventory levels.
Profit-based restocking
Profit-based restocking prioritises restocking efforts according to the profitability of each SKU. It requires regular tracking of sales profitability by SKU.
Profit-based restocking ensures that high-profit items are always in stock. However, it requires detailed profitability analysis for each product.
Demand restocking
Demand restocking uses future demand predictions to make restocking decisions. Retailers often maintain buffer inventory to mitigate stockout risks when using this method.
Demand restocking helps retailers meet fluctuating demand and reduces stockout risks. However, it requires accurate demand forecasting, which can be complex and expensive.
Just-in-time (JIT) inventory
Just-in-time (JIT) inventory is ordered as late as possible to meet demand.
This method reduces inventory costs, but it requires precise demand forecasting and reliable supplier relationships. It’s also incredibly high-risk, and if cracks appear in your supply chain, your brand could experience stockouts.
Economic order quantity (EOQ) method
The economic order quantity (EOQ) method optimises order quantities to minimise total inventory costs, balancing holding and ordering costs.
This is an incredibly complicated mathematical calculation that doesn’t account for demand variability. It’s not suitable for small businesses, but it can be an effective method for enterprise retailers.
Vendor-managed inventory (VMI) method
Vendor-managed inventory hands off restocking responsibility to suppliers.
This method can improve efficiency and increase collaboration. However, it requires strong supplier relationships and a whole lot of trust.
Why is a strong inventory restocking method important?
A strong inventory restocking method is vital for businesses that want to streamline operations and keep customers happy. Here are the key reasons why effective inventory restocking is important:
Avoid stockouts
Stockouts occur when a business runs out of inventory, preventing it from fulfilling customer orders. This situation can have severe consequences, including:
- Lost sales. Customers may turn to competitors if your products are unavailable.
- Damaged reputation: Frequent stockouts can harm your brand’s reputation, making customers less likely to return.
Implementing a robust inventory restocking method can ensure you maintain adequate stock levels, thereby minimising the risk of stockouts and maintaining customer satisfaction.
Avoid overstocking
Overstocking occurs when a business has more inventory than it can sell within a reasonable timeframe. This situation also presents significant challenges, including:
- Poor cash flow. Excess inventory ties up cash that could be used for other critical business operations, such as marketing or product development.
- Higher warehousing costs. Overstocking leads to higher storage costs..
- Waste and losses. Products that remain unsold may become obsolete or unsellable due to changing consumer preferences.
A strong inventory restocking strategy lets you maintain optimal stock levels without overcommitting resources.
Decrease order fulfillment costs
Efficient inventory restocking directly impacts order fulfillment costs in several ways:
- Streamlined operations. Efficient restocking reduces the time you have to spend on managing excess stock or rushing orders to replenish low inventory levels, leading to lower operational costs.
- Reduced shipping costs. Businesses can plan shipments better and consolidate orders when they avoid stockouts through timely restocking. This reduces shipping costs associated with expedited deliveries or emergency orders.
- Improved inventory turnover: A strong restocking method helps products move quickly through the supply chain. Higher inventory turnover rates lead to lower holding costs and increased profitability.
Tips for Optimizing Inventory Restocking
To optimize inventory restocking processes, consider the following tips:
1. Implement an inventory management system
Implementing an inventory management system is a great first step in optimising your inventory restocking process. This software automates inventory tracking, reduces human error, and streamlines processes.
By leveraging tools like ERP systems or specialised inventory management software, businesses can monitor inventory levels in real-time and automate reordering when necessary.
Inventory management software ensures inventory is always at optimal levels, reducing stockouts and overstocking. This integration enables businesses to make informed decisions about inventory levels and respond quickly to changes in demand.
2. Leverage your data
By analyzing past sales trends and seasonal fluctuations, businesses can predict future demand and adjust inventory levels accordingly. This data-driven approach ensures inventory levels align with customer demand, reducing the risk of stockouts or overstocking.
For example, retailers can use historical data to anticipate increased demand during holiday seasons, allowing businesses to stock up in advance and meet customer needs effectively. This proactive approach not only enhances customer satisfaction but also helps businesses avoid the financial losses associated with stockouts or overstocking.
3. Conduct regular audits
Conducting regular audits is essential for maintaining accurate inventory records and identifying inefficiencies. Counting physical stock ensures it matches recorded levels and helps detect shrinkage or errors.
This process also aids in calculating profit and reordering stock as needed. Conducting quarterly audits, for example, can help identify and correct discrepancies early, ensuring that inventory records are accurate and reliable. This proactive approach helps prevent inventory discrepancies from escalating into larger issues, such as stockouts or overstocking, which can disrupt operations and impact profitability.
4. Collaborate with suppliers
By working closely with suppliers, businesses can negotiate better terms, improve communication, and ensure timely deliveries. This collaboration can lead to more efficient inventory management by reducing uncertainty and improving supply chain visibility.
Implementing a vendor-managed inventory (VMI) system, for instance, lets suppliers manage inventory levels directly, ensuring that stock is replenished as needed without manual intervention. This approach not only reduces lead times but also enhances reliability, ensuring that businesses can maintain optimal inventory levels consistently.
5. Automate the replenishment process
By configuring your Warehouse Management System (WMS) to trigger automated reorders based on minimum stock levels or demand forecasts, businesses can ensure timely restocking without manual intervention.
Using a reorder point method, for example, businesses can automate the process of replenishing stock when it reaches a set threshold, maintaining consistent inventory levels. This automation improves efficiency by reducing the time spent on manual tracking and reordering, allowing businesses to focus on other critical operations.
Improve inventory restocking with Pro Carrier
Dedicated software isn’t the only way to streamline your restocking process. Using Pro Carrier’s Returns service helps you get returned products back in stock faster.
Once we collect your returns, we will inspect products and ensure that folding, bagging and relabelling is already taken care of before sending them back to you. This means that your product is ready for resale as soon as you receive it.
Speak to one of our experts today to find out more.