What style of inventory or merchandise planning do you use? Which is more appropriate and what will give me the best results? There are two fundamental types of inventory fulfilment:
Replenishment works on the basis of re-ordering the same goods as stock levels reduce. Inventory is replaced on a recurring basis. Whilst there may be many variables that can be used to help an ordering team optimise the trigger point to re-order a common approach is to use the concept of Min:Max levels . For a particular SKU (Stock Keeping Unit ) a minimum quantity of stock-on-hand is set and once the number of inventory items falls below that level an order is placed to restock or replenish the stock-on-hand to the maximum threshold.
Replenishment works well for items which are consumed on a perpetual or continuous basis, i.e. they don’t change over time or from season to season. It suits retailers that sell standardised items and can be viewed as a scientific or analytical ordering arrangement which is driven by data (especially historical data).
However, this style of ordering does not suit all goods, especially apparel. In the case of clothing for instance, the fashion changes from season-to-season and year-to-year. Placing a repeat order for the same style, colour and size of t-shirt is not appropriate. Inventory management for goods such as apparel, unique or one-off items work best on an ‘allocation’ basis.
Allocation works on the basis of assessing how many units are likely to be sold over a given period and hence an overall allocation of goods is determined. In some respects, allocation requires greater artistic flair or creativity to help determine the right levels of inventory to carry. It relies on qualitative indicators as much as quantitate.
Neither replenishment nor allocation is necessarily the right or wrong approach for a given product. A given store may employ both mechanisms for different products or categories. Indeed, the approach may vary over time. Trialling new products may be ordered on an allocation basis to assess their performance. Once a sales history has been established the ordering process may move to replenishment for optimisation.