Having enough stock to meet customer demand is a foundational necessity for any retailer.That's why efficient, timely inventory restocking is critical to business success.Avoiding stockouts or overordering requires real-time visibility into inventory levels,customer demand and automated stock replenishment processes. By reordering the right amountof goods at the right time, retailers can manage costs, optimize inventory and keepcustomers happy.
What Is Inventory Restocking?
Inventory restocking is the process of replenishing stock to make sure you have enough of agiven product on hand to meet consumer demand. For most retailers, restocking is a key inventory managementprocess. To maintain optimal levels of each product, retailers need to considerdemand forecasts, supply chain issues and logistics, in addition to monitoring currentinventory levels.
Key Takeaways
- Inventory restocking involves reordering the right quantity of each item from suppliersat the right time so that there is enough stock on hand to meet customer demand.
- Efficient inventory restocking processes enable inventory optimization, which meanshaving the right levels of stock available without overspending on unneeded inventoryand related costs.
- Effective inventory restocking demands accurate insight into inventory levels, projectedsales, supply chain availability, logistics and receiving processes.
- Deficient restocking processes can lead to lost sales, higher logistics and warehousingcosts, and impaired customer loyalty.
- Retailers can choose from multiple restocking methods based on their businesscapabilities and goals.
- Automating inventory restocking with inventory management software can improve stockavailability while containing cost.
Inventory Restocking Explained
Retailers aim to ensure that they have enough products at the right time — and in theright location — to meet projected customer sales. Inventory restocking plays a leadrole in achieving that goal. Retailers without good restocking processes are, in effect,reordering blindly. They risk either running out of in-demand items or else overstocking andtying up precious capital in dead stock that cannot besold.
Retailers that master inventory restocking have the data, analytics and processes in place todetermine how, when and what to reorder. That balancing act requires accurate inventorytracking, as well insight into customer demand and preferences, knowledge of supplier leadtimes and clarity about how long it takes to receive, store and prepare stock so it'sready for sale. This information allows retailers to adjust replenishment in response tocustomer or supplier trends.
Why Is Inventory Restocking Important?
Stock availability is a key factor behind retail success — and also one of the biggestinventory management challenges. Efficient restocking ensures that products will be in stockwhen customers need them, thus maximizing sales, profits and customer satisfaction. Incontrast, poor inventory restocking processes can have a detrimental impact on aretailer's top and bottom lines. Failing to replenish stock in a timely way can createstockouts — running out of products customers want to buy — resulting in lostsales, reduced profits and hits to brand reputation. Restocking too much inventory, on theother hand, can tie up capital in inventory carryingcosts (the expenses associated with holding inventory at a warehouse, distributioncenter or store) and increase the risk that inventory will become obsolete. For retailerswith multiple facilities, the location of inventory is also important. Retailers thatrestock inventory in the wrong warehouses, distribution centers or stores may findthemselves overspending on logistics and fulfillment costs.
How Does Inventory Restocking Work?
The inventory restocking process begins long before retail shelves are bare. Rather,retailers consider factors such as current inventory levels, customer demand, productiontimelines, lead times and logistics to make sure they maintain the right amount of inventoryin the right locations. For many retailers, inventory restocking starts with understandingthe minimum stock level required for each item in order to meet anticipated demand.Retailers then determine the correct reorder points and order quantities, taking intoaccount supplier lead times and the time required to receive and process inventory for sale.
What Is Included in Inventory Restocking?
Effective inventory restocking requires insight into current inventory levels, and also intothe company's supply chain and customer demand. Here are some of the key processes andconsiderations involved in knowing what, when and how to replenish.
Demand forecasting and planning.
Retailers analyze consumer trends, historical sales and seasonality data to predictfuture customer demand and plan how much of each product to buy.
Inventory tracking.
The ability to track inventory levels in real time underpins agile inventoryrestocking. Retailers must accurately track the items in stock and the quantitiesavailable at each location.
Supply chain timelines.
It's critical to factor in supplier lead times — the amount of timebetween placing an order and receiving the goods — when determining when toreorder products.
Receiving and restocking processes.
Retailers need to consider how long it takes to receive and unpack new inventory andrestock shelves so products are ready for sale.
Storage capacity.
Companies must take into account their inventory storage capacity when deciding howmuch to reorder.
Safety stock.
Retailers aim to maintain a level of extra safety stock as abuffer in case of unexpected issues such as demand surges or supplier delays.
Inventory reorder points.
Many retailers define a minimum inventory or stock level for each product thattriggers the reordering of more inventory.
Inventory allocation.
When reordering, it's important to consider how to distributethe inventory across retail locations in order to fulfill anticipated orderseffectively and efficiently.
What Are the Risks of Ineffective Inventory Restocking?
Deficient restocking processes can have detrimental impacts, ranging from lost sales andcustomer loyalty to increased logistics and warehousing costs. The most common risksinclude:
Stockouts.
Inadequate inventory replenishment processes can result in the dreaded inventorystockout. When customers find that items they want are out of stock, therepercussions for retailers can extend beyond just losing a sale. Customers mayswitch to other suppliers, for example, or post damaging reviews.
Overstocking.
While overordering may prevent stockouts, it also ties up capital in inventory carrying costssuch as storage, labor, transportation, handling, insurance, taxes, shrinkage anddepreciation. What's more, a retailer may eventually find itself paying tostore dead stock — damaged, expired or outdated products that it can no longersell.
Increased order fulfillment costs.
Poor inventory replenishment decisions can impact receiving, storing, picking,packing and shipping costs. For example, a customer may place an order for twoitems. If one of those items is out of stock or the items are at differentlocations, the retailer may have to send them in two separate shipments, resultingin higher shipping costs.
How to Effectively Restock Inventory
Developing the most effective inventory restocking practices is an ongoing process for manyretailers. Many start by manually tracking and reordering inventory, then develop moreautomated and sophisticated processes for greater accuracy and efficiency as they grow. Bestpractices — such as investing in inventory management software, leveraging data forinsights into inventory levels and customer demand and establishing long-term agreementswith suppliers — can help set retailers on the right path.
5 inventory restocking methods
Retailers can choose from multiple methods for determining when and how to restock inventory.Here are five inventory restocking methods to consider:
Periodic method.
A retailer replenishes stock at fixed intervals, such as monthly or quarterly. Thismethod is the easiest to implement and may be sufficient for a small or low-volumeretailer. It doesn't require real-time inventory tracking tools. However,retailers relying on this method may have difficulty responding to changing businessconditions. For example, a stationery retailer may take stock of its inventory everyquarter and replenish items that are running low. But if a surge in demand for 8 x11 printer paper means some products become unavailable before the quarterlyrestocking, customers will be out of luck.
Reorder point method.
Retailers choose a certain stock level that will trigger replenishment of inventory.The goal is for the new order to arrive before inventory falls below the safetystock level. To use this method most effectively, retailers must take into accountcustomer demand and supplier lead times. A home goods store, for example, may wantto maintain a minimum of 40 vacuum cleaners as safety stock to stave off possiblestockouts. The store continuously monitors the rate at which vacuum cleaners aresold and the number remaining in stock, and places a replenishment order thatensures that more items will arrive before the stock level falls below 40. Goodinventory management systems can help determine the best reorder points for variousSKUs.
Top-off method.
This method replenishes shelves during slow periods, so that items are alwaysavailable during times of high demand. It's useful for retailers with their ownwarehouses or other inventory storage locations that can quickly move items fromstorage to retail or order-picking shelves as necessary. For example, a homeimprovement store may experience a morning rush of orders for electrical productsand plumbing fixtures as contractors and homeowners buy items for their day'swork. When demand dips later in the day, warehouse workers move items from storageto shelves so they can fill orders the next morning. Also known as the lean-timereplenishment method, this strategy can increase efficiency, boost inventoryturnover rates and limit stockouts.
Profit-based method.
This method focuses replenishment efforts on the retailer's most profitableitems. This approach demands the ability to track the profitability of individualproducts. Using inventory analytics, the retailer then ensures that it always keepsthe most profitable products in stock.
Demand-based method.
This method focuses on reordering only the quantities necessary to satisfyanticipated demand. It requires robust demand-planning data and analytics to enableretailers to accurately predict sales and handle demand fluctuations withoutoverstocking or stockouts. Many large grocery chains perform sophisticated demandplanning to minimize costs in an industry with narrow profit margins.
6 tips for restocking inventory
Effective inventory restocking lets retailers keep optimal levels of stock available, therebyboosting sales, maintaining customer satisfaction, increasing productivity and improvingcompetitiveness. Here are six tips for improving replenishment processes.
Invest in inventory management software.
An inventory managementsystem can increase productivity and accuracy by automating inefficient,error-prone manual inventory tracking processes. A good inventory management systemcan provide centralized information in real time about stock levels and status,together with analytics that help businesses make inventory restocking decisionsbased on past and predicted supply chain trends and purchasing behavior. When evesleep, an innovative sleep products supplier, was still running its warehouse andinventory operations on spreadsheets, employees had to download orders manuallybefore sending them for fulfillment and then manually upload files to update stockinformation. As the company outgrew its collection of point software solutions andmanual methods, eve sleep implemented inventory managementsoftware as part of an ERP software suite for running its business. Thecompany now has a unified, centralized platform that automates business functions,and, with a single view across business processes, it is better positioned toefficiently fulfill orders and improve inventory visibility.
Perform demand forecasting.
Demand forecasting software enables retailers to predict how much inventory they needby analyzing data from multiple sources, such as historical sales reports, consumertrends and seasonal data. Fashion retailers, for example, may closely monitorseasonal trends to decide which garments to order, when to buy them and where tostore them to optimize fulfillment.
Collect and leverage inventory data.
Tracking inventory data empowers companies to analyze past trends and adjust theirrestocking approaches over time. A big-box store that ran out of Halloween candylast year — or ordered too much — can analyze that historical data,along with current inventory levels and sales forecasts, to make betterreplenishment plans leading up to Oct. 31.
Optimize reorder points.
Armed with an inventory management system that provides timely data about stocklevels, together with information such as demand forecasts and service-leveltargets, a retailer can reliably determine when to reorder products. Some inventorymanagement systems can automatically calculate reorder points for each item, basedon historical trends and forecasts, and notify staff when inventory levels get low.For windshield wiper blades that take three days to deliver, an auto parts retailermight set an automated reorder point when it has three days' worth of inventoryplus safety stock.
Create stocking agreements with suppliers.
Stocking agreements guarantee that vendors will provide a retailer with specificquantities of items throughout the year; they also specify other terms, such asshipping times. These arrangements help protect retailers from unexpected delays inreplenishment, particularly during seasonal ordering surges. They can also reducecarrying costs because retailers don't need to store as much inventory.
Conduct regular audits.
It’s important to ensure that the data that exists in inventory managementsystems orspreadsheets reflects the reality in warehouses, distribution centers and stores.Inventory audits, including physicalinventory counts, can identify inconsistencies and help retailers ensure theaccuracy of the data used to guide inventory restocking.
Choosing the Right Inventory Restocking Model
It is important to consider the size of the business, along with its goals and capabilities,when determining which inventory restocking model to use. Many small or nascent retailersopt for the periodic method at first. Because it simply involves checking inventory levelsat regular periods, the periodic method is the easiest to implement — and may besufficient to meet the needs of small businesses. As businesses grow, however, managinginventory restocking in this way typically becomes untenable. Larger retailers look for moresophisticated models that use demand forecasts to drive automated replenishment or focus onthe most profitable items. These models are facilitated by inventory management software andanalytics.
Benefits of Automating Inventory Restocking
As a retailer grows, manually managing inventory restocking using spreadsheets or pen andpaper becomes increasingly cumbersome, labor-intensive and error-prone. To meet demand andcontain costs, most retailers depend on automation and analytics to make stock replenishmentdecisions that optimize inventory levels based on real-time data. Modern inventorymanagement software, particularly when integrated with other enterprise software, can enableretailers to:
- Track inventory in real time. Retailers know accurately, in real time,how much of each item is in stock. Inventory management systems constantly update stockcounts, ensuring that retailers have up-to-date information at all times.
- Reduce human error. By automatically tracking stock levels andreplenishment, inventory management software reduces the likelihood of the kinds oferrors that inevitably creep in when using manual tracking methods.
- Demand forecasting. Retailers can take advantage of information such assales forecasts and historical data to better plan and replenish inventory levels tomeet demand.
- Calculate reorder points and safety stock levels. Software canautomatically determine safety stock levels and reorder points for every item, helpingensure that retailers don't run out or overorder.
- Optimize inventory. The combination of accurate, real-time inventorytracking, demand-based forecasting and automated restocking helps businesses optimizeinventory levels to meet customer demand and improve sales while reducing costs.
Automate Inventory Restocking With NetSuite
More effective inventory restocking is one of the many ways a comprehensive inventorymanagement system provides value to retailers. NetSuiteInventory Management enables retailers to automate processes that underpin inventoryrestocking and make data-driven replenishment decisions to improve stock availability, keepinventory costs low and improve customer satisfaction.
A real-time view of inventory metrics across all locations and sales channels means betterhandling of replenishment for inventory optimization. NetSuite Inventory Managementdynamically manages reorder points to optimize stock availability, using demand-basedplanning based on historical data, sales forecasts and seasonality. Support for periodic,selected cycle counts also helps ensure that inventory information is accurate and involvesless effort.
Managing inventory restocking can be challenging for many retailers. But optimizing stockreplenishment can pay dividends in greater efficiency, customer satisfaction, profitabilityand revenue growth. With the right data, inventory restocking method and inventorymanagement technology, retailers can put in place effective stock replenishment processesthat keep them one step ahead of customer demand — and the competition.
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Inventory Restocking FAQs
What does restocking inventory mean?
Inventory restocking is the process whereby a retailer replenishes its stock to make sure ithas enough of every product to meet customer demand. Effective restocking strategies trackinventory in real time and consider demand trends, product availability and logistics tokeep an optimal level of inventory in stock to meet anticipated sales.
What does restocking mean?
Restocking refers to replenishing items in a store or distribution center. Restockingtypically takes place because items have been sold or increased demand is anticipated.
When should you restock inventory
How often a business should replenish its stock is determined by several factors, includingavailable storage space, historical or predicted customer demand, current stock levels,supplier lead times, product profitability and available capital. Many retailers choose aninventory restocking method, such as setting reorder points for each product, and invest inan inventory management system to track stock and automate reordering.
What is another word for restock?
Restocking can also be referred to as stock replenishment, reordering or rebuildinginventory.
