4 Ways Retail ERP Software Improves Inventory Replenishment
A retail ERP system is able to do most of the heavy lifting when it comes to automating inventory replenishment processes, but its forecasting strength resides with your data. There’s a lot that goes into forecasting, including integrating point-of-sale (PoS) systems to all your retail locations.
If you’re a retailer starting to automate your replenishment processes, look at how these four replenishment methods managed by a retail ERP system can improve your inventory management needs.
1. Stock Levels
You should consider this method as the first step in transitioning to an automated inventory replenishment process. With stock levels, a reorder point is defined and a replenishment order is placed when the inventory quantity falls below this safety stock level. The order will replenish stock up to the quantity defined in the reorder point. The ideal safety stock level can be identified after analyzing average sales for a specific time period.
For example, let’s say a medical uniform retailer observed that it sold an average of ten blue scrubs each month for the past year. So when inventory falls below ten units at the end of the monthly inventory cycle, the retail ERP system will automatically place a replenishment order.
Other options include defining a maximum inventory quantity, the proposed replenishment order will replenish stock up to this level, instead of the reorder point. In this case, the ERP system will trigger a replenishment order based on the reorder point.
A potential risk when using the stock levels method is not factoring in seasonality or trends, which could result in out-of-stock inventory.
2. Like-for-Like Inventory Replenishment
If you want to replace every unit that is sold, you can use a like-for-like replenishment model. For every item sold in a user-defined period of time, the same amount is reordered. This is ideal for maintaining a minimal level of inventory and is often used for expensive or slow-moving products.
However, with this replenishment method, you could incur increased shipping costs for frequent replenishment reorders.
3. Average Usage
This replenishment method requires reviewing sales history and calculating the average sales for a specific time period. The calculation is used for forecasting a replenishment schedule based on sales per day or for another defined time period. Average usage method is helpful in factoring a predictable inventory increase during a certain time, known as seasonality.
So if a retailer consistently sells more T-shirts in June compared to other months, the replenishment order every June should factor that expected spike in sales.
Keep in mind that the time period used to calculate the average usage would likely vary according to the individual item or category of items. You can improve your average usage accuracy by manually adjusting the forecast, according to trends. If the retail ERP software is forecasting to stock a specific number of black cardigans for February, but you know that black cardigans are in high demand, the system should allow you to make appropriate adjustments.
Other ways to improve forecasts include accounting for periods within the sales history when items were out of stock and the ability to make corrections for random or one-time spikes in sales.
4. Advanced Forecasting
This replenishment method uses advanced statistical forecasting techniques to predict future sales demand from sales history. Multiple statistical model families are used, and the one that explains the sales history best is automatically selected. The forecast is predicted based on the selected mathematical model and the results allow you to anticipate demand better to more accurately determine what products to order and when to order them.
This method is often useful for creating an automated replenishment schedule when sales vary widely.
For instance, what’s the best replenishment schedule for a specific T-shirt if 100 were sold in June, 50 in July, and 500 in August? The advanced forecasting method offers more accurate forecasts by taking into consideration the expected service level and volatility of the data.
Retailers should improve their inventory management by automating much of their replenishment processes through a retail ERP management solution. While the automated replenishment process can be as simple or sophisticated as needed, the capability depends on the quality of data the retailer provides to the system.
- That’s why some retailers choose the simplest replenishment method; they don’t have the time to put detailed information for every individual inventory item.
When starting out with automating inventory replenishment, it’s best to take a continuous improvement approach. Don’t try to implement the perfect automated replenishment system on day one. Instead, apply a method that is incrementally better than what was done in the past, and make a commitment to continuously improve your processes.
Demystifying Omnichannel Strategies and Retail ERP Systems
Our recent Omnichannel Retail Strategy Guide offers a comprehensive look at the many issues in today’s retail landscape and how to start implementing an approach that is right for you. A big challenge for retailers is connecting any gaps in the customer journey, whether shopping on a smartphone, at home, or in person. ArcherPoint offers free assessments on ERP retail implementations and how to start.