3 Pillars of retail: Replenishment, allocation, and transportation

3 Pillars of retail: Replenishment, allocation, and transportation

The retail industry is one of the most dynamic and fast-paced sectors, comprising different stakeholders engaged in selling finished products to end-user consumers. In 2020, India’s retail sector was estimated at US $883 billion, in which grocery retail accounted for the US $608 billion. With the increased demand for consumer goods in different sectors and the ever-increasing choices of products at low costs, investments in the retail sector have also grown over the past few years.

As there is always an element of change in this industry, new challenges are encountered by the players every day. Take product stockouts, for example. Suppose a customer walks into a grocery store to purchase items of their favorite brand but discovers that the product is not available. Frustrated by this, the customer chooses to either buy any other brand or postpone the purchase; both scenarios are unfavorable to the business. The brand image and sales of the product are damaged because of this out-of-stock issue. The out-of-stock situation occurs when the inventory of a particular product is exhausted; this causes a problem for both suppliers and retailers.

There can be multiple reasons which would cause the product stockout, such as inaccurate inventory data, lack of demand forecasting , or an unseasonal spike in purchasing. Many of these underlying causes of stockouts can be avoided if the business implements adequate processes to be carried out every month. To avoid situations like the stockout example above, retail companies need to develop a methodology for streamlining the following operations:

  1. Replenishment
  2. Allocation
  3. Transportation

These three operations create the three pillars of retail.

Replenishment

Replenishment refers to a situation where the amount of stock left in the store is counted so that the right products are available at an optimal quantity. It is considered an essential aspect of inventory management, as it ensures that the right products are being reordered to meet the demand from customers.

In operational terms, the efficiency of store replenishment has a significant impact on profitability. The effectiveness and accuracy of store ordering affects sales through shelf availability and storage, handling, and wastage costs in stores and other parts of the supply chain. By optimizing the demand forecasting, inventory management, and setting of order cycles and order quantities by making them more systematic, the gains obtained are significant, often amounting to savings of several percent of total turnover.

For companies that must manage a large number of SKUs, one of the most effective ways of making store replenishment more accurate, efficient, and cost-effective is by using a replenishment system specifically tailored to the business operations. When many different products are needed to be managed, manual ordering is highly labor-intensive and expensive; this results in companies using the replenishment system.

An efficient replenishment system reduces process costs, improves inventory turnover, and provides higher service levels. The system constantly monitors the stock, sales, and demand while considering the forecast changes in demand and adjusting the replenishment orders. Recognizing the sales frequency, sales value, or profit margin, the company can control its inventory in such a way that ensures long-term profitability. The replenishment system calculates the safety stock level for each SKU separately and sets them to meet the service level targets with efficiency, considering the predictability of demand.

Allocation

In allocation, the new stock of products is distributed to individual store units, such that they maximize the sale of the product and prevent any stock out situation in the future. This process enables the assigning of supplies so that they support the organization’s strategic goals. Having sufficient stock levels is an essential component for any retail business; with the changing consumer habits, it becomes crucial for the stock to be available in the right place at the right time.

To meet the new and increasing demands, the retailers need an efficient process where data is gathered, interpreted, and analyzed from customer behaviors and habits, which would help get a more localized and specific idea of what is sold at a larger quantity in different locations. Items that are high sellers in one particular area may not sell well in others, so recognizing and monitoring this can ensure that the stock is allocated to the most needed location. Due to this, an opportunity is provided for the retailers to encourage sales by pushing stock of a similar type that a customer may favor at a particular location.

Transportation

It is crucial for transportation to play a significant role in business to deliver the right stock of products at the right point of delivery. It connects the business to its supply chain partners and influences the customers’ satisfaction with the organization. With the ever-changing customer preferences and as their expectations continue to evolve, the transportation industry is undergoing a dramatic transformation to meet these demands.

Today, data plays a vital role in shaping how the industry will progress amidst tough competition. Due to the maturation of automation technologies, AI will help the transportation industry to better manage drivers and fleet managers . By employing the techniques of AI, fleet and truck adjustments will offer data in real-time, eventually improving the industry’s standard. The safety and retention of the drivers will also increase from these newly acquired standards, and with enhanced access to data, there will be transparent communication between drivers and carriers.

The average time between goods purchasing and delivery decreases by using real-time findings, making retailers focus on transportation to improve their business performance. The ability to automate insights, alerts, and data exchange more quickly will be the game-changer for this industry.

Conclusion

To meet these growing customer expectations, retailers should give priority to collecting the customer data and analyzing it to support business decisions throughout their value chain. The inventory stocking patterns and shipping routes will shift in relation to patterns informed by this data. Retailers should make a concentrated effort to leverage the data while making critical business decisions, and to remain efficient; they must remain flexible and transform their operations as they capture more insights from their data.

Over the past 10 years, Neal Analytics has helped many retail companies make their replenishment, allocation, and transportation operations more efficient by leveraging the cloud, data, and AI.  If you would like to learn more about optimizing these aspects of your retail business, please contact us to speak with one of our experts.

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