By ditching the crude’Minimum Stock Level’ formula and introducing Automated Replenishment, built on proven principles of retail purchasing, retailers can transform their business efficiency and customer experience
The Minimum Stock Level (MSL) formulation is a global version, used by retailers of all sizes, to handle inventory. And it is entirely unfit for purpose. In fact, it always was.
The primary issue with MSL is that it assumes a uniformity to weekly and monthly sales that doesn’t exist in the actual world. The identical product never sells at precisely the identical run rate weekly. It never has and it never will, and that is why MSL is worse than redundant, it’s financially damaging your organization. Let’s look at why.
A self-perpetuating sales blocker
In any given month, your weekly earnings for every product SKU will be different. The only scenario where a merchant sells the identical volume of a particular solution, each and every week, is in their imagination. The truth is that sales by merchandise line are diverse week to week and this combined with the MSL fixed supply chain means that you’re either over or under-invested in product SKUs per week.
For the weeks once your supply is higher than demand on particular product SKUs, you may finish sales to all interested clients, but you’ll be left with overstocks (excess stock ).
Holding excess inventory is squandering your finite capital investment that might be deployed on other products which could be generating sales and profit for your company. Prolonged excess inventory also contributes to unnecessary clearance sales and reduced margins.
To be effective, you will need to increase your capital investment in the inventory that customers are purchasing week to week. Otherwise, your hard-earned capital will rust away, caught up in unsold inventory.
Understocks is another MSL scenario where the effect is more obvious; client demand exceeds supply and your clients can not get the product(s) they need which equals lost sales, reduced profits and a bad customer experience.
Meeting your customers’ expectations
Today’s shoppers are unforgiving, and the retail landscape is cut-throat. If you do not have the ideal inventory in the right store at the ideal time, you are in trouble: customers will see another merchant who can. And in case you can not get your purchasing strategy to within 10 percent of the demand curve, then you are in even more trouble.
Immediate access to desirable products is the minimal expectation of today’s clients. The effects of MSL in your ROI is obvious and you will need to make a change.
How can automated replenishment work?
An Automated Replenishment system lets you handle your reorder levels based on real world data, factoring in how much has [really ] been marketed historically. At the core of the system is an algorithm that combines real-time information analysis on key metrics across all of your shops and e-commerce.
- Sales daily run rate
- Supplier lead time
- Days pay
- Present stock in shop
- On purchase stock
- Stock in transit
The algorithm does the hard work for you by automating the data analysis and determining the essential reorder levels to replenish your stores, and also the best inventory to buy from providers. The system can also automate the inventory transfers from your warehouse to your shops and generate purchase orders which could be assessed before they’re sent to providers.
At the time it takes you and your staff to manually handle stock transfers and buying, your algorithm has already done a calculation across your whole supply chain and began implementation based on proven principles of retail purchasing.
You remain in complete control of your own business; the effective algorithm can offer both automatic and suggested replenishment capacity to guide your choices.
An automated replenishment solution is a standard [from the box] feature of any modern POS software system and it can be tailored to fit the particular needs of your company.
What are the advantages?
- Revenue growth — eliminate the chance of overstocks and understocks, increase the return on capital investment in stock, reduce surplus stock and the demand for clearance sales and minimise stock outs and lost earnings
- Improved efficacy and effectiveness — create better informed purchase decisions working with precise data for each and every inventory item will make it easy to find the perfect inventory in the right store at the ideal time.
- Identify problems and anomalies — both shops have similar demographics: one is reporting a minimal run rate on particular products that are selling well in another shop. As opposed to simply ordering more stock, you’re permitted to investigate and utilize your data to find out the origin of the lost earnings — and do something about it.
- Staff capacity — save as much as 50% of labor time now deployed on guide buy administration enabling staff to concentrate on high value activities.
- Improved customer experience — you may always have stock to satisfy the demands of your clients week on week.
- Scalable growth — expand your performance without having to invest in administrative tools.
By arming your retail company with reliable live data and systems to automate replenishment using proven algorithms, you can transform your business efficiency and customer experience.
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