Restocking is an important process for a company. Stock management is essential , as it directly affects the company’s business and sales, and consequently its development. Restocking is an essential and strategic process, and the better it’s managed the better the company’s chances of surviving. Let’s take a closer look at all this.
Restocking: a definition
In logistics, restocking basically designates the renewal of the company’s stock in order to avoid stock shortages. This stock may take the form of:
- Raw materials for use in production;
- Finished products ready for market without further processing;
- Products consumed in the daily operations of the company (packaging, stationery, maintenance supplies etc.).
Stock replenishment orders are issued according to a predefined method which takes into account the company’s strategy in terms of product storage, and the nature of the product concerned.
To ensure the proper articulation of operations, restocking levels are determined in advance to allow stock to be renewed before it runs out. Lead times for restocking must also be taken into account.
The difference between restocking and supply
Supply is the action of endowing a company’s stocks. In other words, building up its initial holdings of product. Each new SKU complements the existing product range.
The quantities ordered during the supply phase therefore depend on the anticipated sales and the type of product. It is only after this initial supply phase that the company implements its restocking strategy.
Restocking is the action of re-ordering the same SKUs to maintain level of stock and avoid shortages. The aim is therefore to implement, monitor and adapt the restocking strategy according to the realities of consumption. A restocking policy must ensure that there is always enough product to meet demand, without excessive amounts being held in stock.
Note: the stock held in a<a href=""/entrepot-logistique"" rel=""noopener"" target=""_blank""> warehouse is like locked-in money.
The larger the stock, the more locked-in money.
That’s why it’s essential to limit the quantities of product in stock by fine-tuning your restocking operations.
The different restocking models
Restocking models depend on the type of business and the products it deals in. There are five basic approaches to restocking.
Each has its advantages and disadvantages, and you have to know what these are so you can select the approach best suited to your business.
Calendar restocking
Deliveries of stock are scheduled for fixed dates and in fixed quantities. These quantities are generally close to those required to meet the optimal number of orders per year.
Advantages
Stock management is simplified, as dates and quantities are scheduled in advance and not changed later.
Disadvantages
This method offers no room for manoeuvre in stock control. Therefore, there is a significant risk of stock shortages if sales increase, or of overstocking if sales fall.
The top-up method
More flexible than the calendar method, the top-up method works with fixed-date deliveries but variable quantities. Thus, the quantities ordered on each delivery are calculated as a function of remaining stocks.
Advantages
The risk of overstocking or stockout is minimized, as the quantities ordered depend on remaining stock.
Disadvantages
The longer the intervals between delivery dates, the more difficult it is to estimate requirements. If the consumption trend changes between two orders, reactivity is low and the risk of stockout or surplus stock is real.
Restocking at variable date and quantity
This is a flexible method based on non-predetermined dates and quantities. It’s most often used with raw materials whose prices are subject to market fluctuations (metals, cereals etc.). Given its flexibility, it takes in-depth market knowledge to use this model correctly.
Forecasting is essential: we need to know when commodity prices are likely to rise or fall so we can restock at the most convenient time.
Advantages
This method saves money by buying large quantities when prices are lowest.
Disadvantages
It’s risky, and requires significant storage capacity.
Just-in-time restocking
With the just-in-time method, an order is placed with the supplier only when the company receives an order from the customer.
Advantages
By reducing product storage, the company significantly reduces its storage costs. Its cash flow requirements will be lower than those of companies using other methods.
Disadvantages
Delivery times can be long, as the product has to be manufactured, sent to the distribution centre, and then delivered to the customer. It is impossible to meet urgent stock requirements with this method.
The threshold method
In this method, restocking orders are launched when the stock level falls below a certain threshold. The threshold is determined in light of minimum stock and buffer stocks.
Note: “minimum stock” designates the amount of stock deemed necessary for meeting delivery times based on average consumption. Buffer stock is designed to avoid stockouts by allocating a certain fraction of stock to cover possible problems.
Advantages
This method is suitable for avoiding shortages of stock with non-linear consumption patterns.
Disadvantages
It requires constant monitoring of reserve stocks and pushes the company to hold more buffer stock.
Stock management and restocking policy require much consideration. A poorly thought-out restocking model inevitably signifies financial loss for the company. Therefore, the model you select has to reflect the nature of your supply chain and the products you stock.
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