Product demand changes from week to week, which can make fixed Minimum Stock Levels an unreliable basis for purchasing and replenishment. When the same quantity is maintained regardless of actual sales activity, a retailer may hold excess stock in some periods while running out of products in others.
In this video, we guide you through the process of setting up Minimum Stock Levels and using the Automated Replenishment feature in Retail Express. By managing stock levels efficiently, you can avoid running out of products, ensuring you never miss a sale.
This system helps optimize inventory, reduces manual stock management, and ultimately improves profit margins by maintaining the right stock levels at all times.
Chapters
Timestamp | Chapter |
|---|
00:05 | Understanding Changes in Product Demand |
00:31 | Limitations of Minimum Stock Levels |
01:00 | Investing in Products That Are Performing |
01:12 | How Understocking Affects Sales |
01:56 | Risks of Overstocking and Understocking |
02:35 | Moving to Automated Replenishment |
02:51 | Data Used by the Replenishment Algorithm |
03:24 | Optimising Purchasing and Store Replenishment |
04:03 | Automated and Suggested Replenishment |
04:23 | Identifying Performance Differences Between Stores |
04:41 | Benefits of Automated Replenishment |
05:15 | Improving Business Performance Using Live Data |
Transcript
Product sales do not remain consistent from one week to the next. Automated Replenishment responds to this variation by using current sales and inventory information instead of maintaining a permanently fixed stock quantity.
Understanding Changes in Product Demand
The same product does not sell at the same rate every week.
During any given month, weekly sales are likely to rise and fall rather than follow a consistent pattern. Despite this variation, many retailers use a fixed Minimum Stock Level to manage significant inventory purchasing decisions.
Limitations of Minimum Stock Levels
A Minimum Stock Level maintains a fixed supply quantity while customer demand continues to change.
This can result in the business being either over-invested or under-invested in a product during most weeks.
When supply is greater than demand, the business holds excess inventory. The capital invested in that stock could otherwise have been used to purchase products that are selling more quickly and generating a return.
Investing in Products That Are Performing
A retailer has a finite amount of working capital available for inventory.
That capital should be invested in products that are performing. Holding too much stock in products with a low sales rate prevents the business from investing in products with stronger customer demand.
How Understocking Affects Sales
When demand is greater than supply, customers have limited access to the products they want.
When the required product is unavailable, the customer may purchase it from another retailer. This creates a lost sale and may also affect the customer’s future relationship with the business.
Maintaining a permanently fixed stock level can limit sales because the Outlet does not have the opportunity to hold inventory that reflects the product’s actual sell-through rate.
Risks of Overstocking and Understocking
Overstocking and understocking can both negatively affect a retailer.
Overstocking may result in:
- Excess inventory.
- Clearance sales.
- Reduced margins.
- Working capital being tied up in slow-moving products.
Understocking may result in:
- Products being unavailable when customers want them.
- Lost sales.
- Customers purchasing from another retailer.
- Reduced potential sales at individual stores.
The objective is to place the right stock in the right store at the right time.
Moving to Automated Replenishment
Automated Replenishment provides an alternative to fixed Minimum Stock Levels.
Instead of maintaining an arbitrary quantity, a replenishment algorithm uses current information from across the retailer’s stores and ecommerce operations.
It compares supply with actual demand and calculates the inventory that should be purchased or moved between locations.
Data Used by the Replenishment Algorithm
The replenishment calculation can use information such as:
- Daily sales run rate.
- Supplier lead time.
- Required days of stock cover.
- Existing stock in each store.
- Stock already on order.
- Stock currently in transit.
Using this information, the system can determine the stock required by each location.
It can then support the creation of:
- Stock transfers from a warehouse to stores.
- Purchase requirements from suppliers into the warehouse.
Optimising Purchasing and Store Replenishment
The replenishment calculation determines the optimum inventory to purchase and the quantity that should be replenished to each store.
This reduces the time staff spend manually calculating and administering Purchase Orders and transfers.
It also reduces the reliance on instinct when deciding how much of each product to order. An automated calculation can assess information across the complete supply chain more quickly than manually reviewing thousands of products.
Automated and Suggested Replenishment
Automated and Suggested Replenishment can remove much of the guesswork from inventory purchasing.
The system can use information such as the days of stock remaining for each product to determine when additional inventory is required.
This helps the retailer place the right products in the right stores based on actual demand patterns.
Identifying Performance Differences Between Stores
Replenishment data can also help identify differences in product performance between comparable stores.
For example, one store may report a low sales run rate for a product while another store with similar customer demographics sells the same product successfully.
Instead of automatically ordering more stock, the retailer can investigate the reason for the difference.
The investigation may identify issues such as:
- Poor product placement.
- Limited product visibility.
- Insufficient staff knowledge or training.
- Differences in how the product is presented to customers.
Benefits of Automated Replenishment
Automated Replenishment can help reduce excess stock and the need for clearance sales.
It can also minimise stock-outs that result in lost sales.
The video explains that automating the purchasing calculation can save up to 50% of the labour time typically spent on manual purchase administration.
This allows staff to focus on activities that provide more value to the business.
Improving Business Performance Using Live Data
Using reliable live data and replenishment algorithms can improve inventory efficiency and the customer experience.
It helps the business:
- Make more informed purchasing decisions.
- Improve the return on capital invested in inventory.
- Reduce excess and slow-moving stock.
- Improve product availability.
- Respond more effectively to changing customer demand.
- Allocate inventory to the locations where it is most likely to sell.