The backbone of successful inventory management lies in efficient Inventory replenishments. Which all starts by setting up an optimal replenishment cycle.

Now, in a business, orders will be sent, stock will be received and consumed by customers. More stock will be received and consumed again, creating a cyclical pattern called the replenishment cycle. The cycle reflects the number of days between stock receipts.

The replenishment cycle reflects the desired stock coverage of future demand, which in turns sets the frequency of replenishments. So, every time you order an item, you wish to cover x many days of demand until you receive the next batch of x many days, delivered by your supplier.

Because of the conversion from units to days through the demand forecasts, the units will vary one replenishment cycle to the next. That means an umbrella with a 30 day replenishment cycle will have fewer units over the dry season than over the rainy season.

Examples

If we sell 100 units per month and buy 300 units in each order, we have a replenishment cycle of 90 days.

If we sell 100 units per month and buy 25 units in each order, we have a replenishment cycle of 7days.

Below are some considerations to take into account when determining the optimal replenishment cycle.

Product characteristics, such as different storage requirements, shelf lives and demand patterns. Perishable goods for example, require short replenishment cycles to prevent spoilage, while durable goods can live happily in a long replenishment cycle.

Demand uncertainty impacts the risk of obsolescence and markdowns. In general products with stable demand can pursue economies of scale by replenishing economic batch sizes. While products with high demand uncertainty call for a more agile approach through short replenishment cycles, as it enables a quicker reaction to demand changes.

Fast moving items, could be well fitted in a short replenishment cycle to minimize the amount of money tied up in inventory, and to keep your warehouse from overflowing.

Slow moving items, could be cost optimized in a long replenishment cycle, to balance the cost of ordering and logistics.

Just keep in mind that too short replenishment cycles can increase the risk of stock out, while too long replenishment cycles can create overstock and risk of obsolescence. There is always a balance to be found.

An important thing to note is that the replenishment cycle reflects the stock that should be sold in a period, to be successful there should always be an adequate level of safety stock to tackle any uncertainties.

Effective replenishment cycles can contribute to an improved inventory turnover, which is the rate at which inventory is sold and replaced within a specific timeframe. Higher inventory turnover ratios indicate that products are selling quickly and efficiently, freeing up capital for other investments.