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 amount of goods at the right time, retailers can manage costs, optimize inventory and keep customers happy.
What Is Inventory Restocking?
Inventory restocking is the process of replenishing stock to make sure you have enough of a given product on hand to meet consumer demand. For most retailers, restocking is a key inventory management process. To maintain optimal levels of each product, retailers need to consider demand forecasts, supply chain issues and logistics, in addition to monitoring current inventory levels.
- Inventory restocking involves reordering the right quantity of each item from suppliers at the right time so that there is enough stock on hand to meet customer demand.
- Efficient inventory restocking processes enable inventory optimization, which means having the right levels of stock available without overspending on unneeded inventory and related costs.
- Effective inventory restocking demands accurate insight into inventory levels, projected sales, supply chain availability, logistics and receiving processes.
- Deficient restocking processes can lead to lost sales, higher logistics and warehousing costs, and impaired customer loyalty.
- Retailers can choose from multiple restocking methods based on their business capabilities and goals.
- Automating inventory restocking with inventory management software can improve stock availability while containing cost.
Inventory Restocking Explained
Retailers aim to ensure that they have enough products at the right time — and in the right location — to meet projected customer sales. Inventory restocking plays a lead role 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 and tying up precious capital in dead stock that cannot be sold.
Retailers that master inventory restocking have the data, analytics and processes in place to determine how, when and what to reorder. That balancing act requires accurate inventory tracking, as well insight into customer demand and preferences, knowledge of supplier lead times and clarity about how long it takes to receive, store and prepare stock so it's ready for sale. This information allows retailers to adjust replenishment in response to customer or supplier trends.
Why Is Inventory Restocking Important?
Stock availability is a key factor behind retail success — and also one of the biggest inventory management challenges. Efficient restocking ensures that products will be in stock when customers need them, thus maximizing sales, profits and customer satisfaction. In contrast, poor inventory restocking processes can have a detrimental impact on a retailer's top and bottom lines. Failing to replenish stock in a timely way can create stockouts — running out of products customers want to buy — resulting in lost sales, reduced profits and hits to brand reputation. Restocking too much inventory, on the other hand, can tie up capital in inventory carrying costs (the expenses associated with holding inventory at a warehouse, distribution center or store) and increase the risk that inventory will become obsolete. For retailers with multiple facilities, the location of inventory is also important. Retailers that restock inventory in the wrong warehouses, distribution centers or stores may find themselves 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, production timelines, lead times and logistics to make sure they maintain the right amount of inventory in the right locations. For many retailers, inventory restocking starts with understanding the minimum stock level required for each item in order to meet anticipated demand. Retailers then determine the correct reorder points and order quantities, taking into account 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 into the company's supply chain and customer demand. Here are some of the key processes and considerations involved in knowing what, when and how to replenish.
Demand forecasting and planning.
Retailers analyze consumer trends, historical sales and seasonality data to predict future customer demand and plan how much of each product to buy.
The ability to track inventory levels in real time underpins agile inventory restocking. Retailers must accurately track the items in stock and the quantities available at each location.
Supply chain timelines.
It's critical to factor in supplier lead times — the amount of time between placing an order and receiving the goods — when determining when to reorder products.
Receiving and restocking processes.
Retailers need to consider how long it takes to receive and unpack new inventory and restock shelves so products are ready for sale.
Companies must take into account their inventory storage capacity when deciding how much to reorder.
Retailers aim to maintain a level of extra safety stock as a buffer 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 that triggers the reordering of more inventory.
When reordering, it's important to consider how to distribute the inventory across retail locations in order to fulfill anticipated orders effectively and efficiently.
What Are the Risks of Ineffective Inventory Restocking?
Deficient restocking processes can have detrimental impacts, ranging from lost sales and customer loyalty to increased logistics and warehousing costs. The most common risks include:
Inadequate inventory replenishment processes can result in the dreaded inventory stockout. When customers find that items they want are out of stock, the repercussions for retailers can extend beyond just losing a sale. Customers may switch to other suppliers, for example, or post damaging reviews.
While overordering may prevent stockouts, it also ties up capital in inventory carrying costs such as storage, labor, transportation, handling, insurance, taxes, shrinkage and depreciation. What's more, a retailer may eventually find itself paying to store dead stock — damaged, expired or outdated products that it can no longer sell.
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 two items. If one of those items is out of stock or the items are at different locations, the retailer may have to send them in two separate shipments, resulting in higher shipping costs.
How to Effectively Restock Inventory
Developing the most effective inventory restocking practices is an ongoing process for many retailers. Many start by manually tracking and reordering inventory, then develop more automated and sophisticated processes for greater accuracy and efficiency as they grow. Best practices — such as investing in inventory management software, leveraging data for insights into inventory levels and customer demand and establishing long-term agreements with 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:
A retailer replenishes stock at fixed intervals, such as monthly or quarterly. This method is the easiest to implement and may be sufficient for a small or low-volume retailer. It doesn't require real-time inventory tracking tools. However, retailers relying on this method may have difficulty responding to changing business conditions. For example, a stationery retailer may take stock of its inventory every quarter and replenish items that are running low. But if a surge in demand for 8 x 11 printer paper means some products become unavailable before the quarterly restocking, 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 safety stock level. To use this method most effectively, retailers must take into account customer demand and supplier lead times. A home goods store, for example, may want to maintain a minimum of 40 vacuum cleaners as safety stock to stave off possible stockouts. The store continuously monitors the rate at which vacuum cleaners are sold and the number remaining in stock, and places a replenishment order that ensures that more items will arrive before the stock level falls below 40. Good inventory management systems can help determine the best reorder points for various SKUs.
This method replenishes shelves during slow periods, so that items are always available during times of high demand. It's useful for retailers with their own warehouses or other inventory storage locations that can quickly move items from storage to retail or order-picking shelves as necessary. For example, a home improvement store may experience a morning rush of orders for electrical products and plumbing fixtures as contractors and homeowners buy items for their day's work. When demand dips later in the day, warehouse workers move items from storage to shelves so they can fill orders the next morning. Also known as the lean-time replenishment method, this strategy can increase efficiency, boost inventory turnover rates and limit stockouts.
This method focuses replenishment efforts on the retailer's most profitable items. This approach demands the ability to track the profitability of individual products. Using inventory analytics, the retailer then ensures that it always keeps the most profitable products in stock.
This method focuses on reordering only the quantities necessary to satisfy anticipated demand. It requires robust demand-planning data and analytics to enable retailers to accurately predict sales and handle demand fluctuations without overstocking or stockouts. Many large grocery chains perform sophisticated demand planning 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, thereby boosting sales, maintaining customer satisfaction, increasing productivity and improving competitiveness. Here are six tips for improving replenishment processes.
Invest in inventory management software.
An inventory management system can increase productivity and accuracy by automating inefficient, error-prone manual inventory tracking processes. A good inventory management system can provide centralized information in real time about stock levels and status, together with analytics that help businesses make inventory restocking decisions based on past and predicted supply chain trends and purchasing behavior. When eve sleep, an innovative sleep products supplier, was still running its warehouse and inventory operations on spreadsheets, employees had to download orders manually before sending them for fulfillment and then manually upload files to update stock information. As the company outgrew its collection of point software solutions and manual methods, eve sleep implemented inventory management software as part of an ERP software suite for running its business. The company now has a unified, centralized platform that automates business functions, and, with a single view across business processes, it is better positioned to efficiently fulfill orders and improve inventory visibility.
Perform demand forecasting.
Demand forecasting software enables retailers to predict how much inventory they need by analyzing data from multiple sources, such as historical sales reports, consumer trends and seasonal data. Fashion retailers, for example, may closely monitor seasonal trends to decide which garments to order, when to buy them and where to store them to optimize fulfillment.
Collect and leverage inventory data.
Tracking inventory data empowers companies to analyze past trends and adjust their restocking approaches over time. A big-box store that ran out of Halloween candy last year — or ordered too much — can analyze that historical data, along with current inventory levels and sales forecasts, to make better replenishment plans leading up to Oct. 31.
Optimize reorder points.
Armed with an inventory management system that provides timely data about stock levels, together with information such as demand forecasts and service-level targets, a retailer can reliably determine when to reorder products. Some inventory management systems can automatically calculate reorder points for each item, based on 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 retailer might set an automated reorder point when it has three days' worth of inventory plus safety stock.
Create stocking agreements with suppliers.
Stocking agreements guarantee that vendors will provide a retailer with specific quantities of items throughout the year; they also specify other terms, such as shipping times. These arrangements help protect retailers from unexpected delays in replenishment, particularly during seasonal ordering surges. They can also reduce carrying 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 management systems or spreadsheets reflects the reality in warehouses, distribution centers and stores. Inventory audits, including physical inventory counts, can identify inconsistencies and help retailers ensure the accuracy 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 retailers opt for the periodic method at first. Because it simply involves checking inventory levels at regular periods, the periodic method is the easiest to implement — and may be sufficient to meet the needs of small businesses. As businesses grow, however, managing inventory restocking in this way typically becomes untenable. Larger retailers look for more sophisticated models that use demand forecasts to drive automated replenishment or focus on the most profitable items. These models are facilitated by inventory management software and analytics.
Benefits of Automating Inventory Restocking
As a retailer grows, manually managing inventory restocking using spreadsheets or pen and paper becomes increasingly cumbersome, labor-intensive and error-prone. To meet demand and contain costs, most retailers depend on automation and analytics to make stock replenishment decisions that optimize inventory levels based on real-time data. Modern inventory management software, particularly when integrated with other enterprise software, can enable retailers 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 stock counts, ensuring that retailers have up-to-date information at all times.
- Reduce human error. By automatically tracking stock levels and replenishment, inventory management software reduces the likelihood of the kinds of errors that inevitably creep in when using manual tracking methods.
- Demand forecasting. Retailers can take advantage of information such as sales forecasts and historical data to better plan and replenish inventory levels to meet demand.
- Calculate reorder points and safety stock levels. Software can automatically determine safety stock levels and reorder points for every item, helping ensure that retailers don't run out or overorder.
- Optimize inventory. The combination of accurate, real-time inventory tracking, demand-based forecasting and automated restocking helps businesses optimize inventory 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 inventory management system provides value to retailers. NetSuite Inventory Management enables retailers to automate processes that underpin inventory restocking and make data-driven replenishment decisions to improve stock availability, keep inventory costs low and improve customer satisfaction.
A real-time view of inventory metrics across all locations and sales channels means better handling of replenishment for inventory optimization. NetSuite Inventory Management dynamically manages reorder points to optimize stock availability, using demand-based planning based on historical data, sales forecasts and seasonality. Support for periodic, selected cycle counts also helps ensure that inventory information is accurate and involves less effort.
Managing inventory restocking can be challenging for many retailers. But optimizing stock replenishment can pay dividends in greater efficiency, customer satisfaction, profitability and revenue growth. With the right data, inventory restocking method and inventory management technology, retailers can put in place effective stock replenishment processes that keep them one step ahead of customer demand — and the competition.
Inventory Restocking FAQs
What does restocking inventory mean?
Inventory restocking is the process whereby a retailer replenishes its stock to make sure it has enough of every product to meet customer demand. Effective restocking strategies track inventory in real time and consider demand trends, product availability and logistics to keep 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. Restocking typically 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, including available storage space, historical or predicted customer demand, current stock levels, supplier lead times, product profitability and available capital. Many retailers choose an inventory restocking method, such as setting reorder points for each product, and invest in an 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 rebuilding inventory.