How can I calculate when to Replenish Product or Packaging?Updated 8 months ago
What is Replenishment?
Replenishment is when stock is moved from back stock to active stock or when inventory is reordered with a vendor to restore stock levels to a former or new level.
Replenishment of goods is typically triggered when the inventory level hits a reorder point, also called the reorder level
What is a Reorder Level?
The Reorder Level is a predetermined level of stock or supply that indicates that a reorder needs to take place. When calculated correctly, the reorder level should result in replenishment inventory arriving just as the existing inventory quantity has declined to zero
Here is a Simple Way to calculate when to Replenish Inventory
**Before calculations, processes, and planning need to be put in place to consistently monitor inventory, performance, and lead times with vendors to ensure you have up-to-date information to accurately operate**
**The key is to find the sweet spot where you have enough inventory to meet demand (without the risk of stockouts) while also avoiding overstocking items.**
To calculate the reorder level,
Average Daily Usage (daily order rate) x the Lead Time (time it takes to manufacturer)
+ Transit in days for an inventory item = REORDER LEVEL
What is the problem with Overstocking?
Overstocking items raises financial costs because the investment remains in the warehouse without creating cash flow or profits.
At Nice, we charge for product storage based on our sell-through model. Please review your Agreement or connect with your Account Manager to best understand your storage rates and amounts.
Here are a few replenishment methods to consider:
1. Reorder point or Reorder Level/ Selecting a stock level that signals when it’s time to reorder inventory.
Example: If you stock 1,000 hats, you may set your reorder point to when 200 hats remain in your inventory.
2. Demand Strategy / Replenishment is based on demand. This requires careful planning to ensure you've prepared for future demand fluctuations, your supply chain, etc. To help with this
Example: You have calculated that you need 100 mailers for a week's worth of orders and you have 800 on hand. However, your supplier has a 3-week lead time and needs a week to ship the items to Nice = 4 weeks
Want to chat about what is going on in the industry, how your brand can limit overstocking inventory, or something else? Email [email protected] and we can schedule time to do just that!