Inventory management is the lifeblood of supply chain operations. But volatile market conditions have made managing stock levels more challenging than ever. Inventory shortages cost companies over $1 trillion globally in lost sales every year according to IBM. And with lead times lengthening, demand fluctuations intensifying, and global events disrupting supply continuity, maintaining optimal inventory has become a competitive necessity.
This makes automated reordering an essential technology for 2024 and beyond.
What is Automated Reordering?
Automated reordering refers to using technology to monitor stock levels across warehouses and automatically generate purchase orders when inventory gets low. It involves:
- An end-to-end inventory management system to aggregate and analyze inventory data from across the supply chain.
- Automation tools like RPA, AI, and workload automation to initiate and process orders based on predefined rules.
The automated system constantly tracks inventory quantities and consumption trends across all stock-keeping units (SKUs). When the counted stock of an item drops below its pre-established reorder point, the system automatically creates a purchase order to replenish supply. This order can be sent directly to the vendor or routed to procurement staff for review before release.
Automated reordering tracks inventory levels in real-time and creates orders as needed
Now let‘s examine the top 10 benefits companies can realize by automating inventory replenishment.
10 Benefits of Automated Reordering
Automating the inventory reorder process delivers major cost, service, and efficiency benefits, including:
1. Free Up Significant Time
Ordering inventory is complex, routine work that ties up buyer time. APQC research found that manual purchase order creation took 15.6 minutes per order on average. Automating this work frees up procurement staff for value-added analysis and exception management.
This time-savings is exponentially impactful during seasonal peaks when replenishment orders spike up to 4.2x the average according to Blue Yonder estimates. Automating order creation and monitoring helps handle this peak workload.
2. Smarter, Data-Driven Inventory Management
Modern systems apply AI and machine learning to forecast demand based on historical data, weather predictions, sales events, and other signals. They factor in lead times, variability, and other constraints to determine optimal reorder points and lot sizes.
This data-driven approach prevents out-of-stocks which cost retailers $1 trillion+ annually and choke manufacturing output. It also avoids over-ordering which ties up working capital.
3. Reduce Inventory Waste and Costs
The US alone sees 30-40% food waste from farm to retailer due to overstocks and spoilage. But optimizing reorder quantities reduces waste, write-offs, inventory holding costs, and supply chain risks.
Automated systems also minimize stockouts which lead to missed sales. One estimate pegged the cost of stockouts at 4.9% of retail revenue.
4. Faster Replenishment for Better Service
Automating order generation and submission as soon as reorder points are breached leads to faster inventory replenishment from suppliers. This minimizes lead times and maximizes product availability.
Studies show automating supplier integration can compress replenishment cycles by 3-4 days on average. This adds up to substantial working capital reductions. Faster inventory turns also reduce obsolescence costs.
5. Schedule Orders Based on Demand Patterns
Automated systems can schedule recurring orders based on historical or projected demand. For products with seasonal, monthly, or weekly peaks in demand, orders can be timed to arrive just ahead of each peak.
Apparel brands, for example, can time their reorders to align with fashion seasons. Grocers can align orders to weekends when demand surges 15-20%. This aligns inventory supply with selling cycles.
6. Real-Time Alerts and Notifications
IoT sensors can track product availability on shelves and in warehouses in real-time. When stocks fall below defined thresholds, the system can alert store managers to initiate a rapid response.
Real-time inventory visibility ensures immediate corrective actions instead of untimely manual stocktakes. This minimizes stockouts and loss of sales.
7. Eliminate Miscalculation of Stock Levels
Periodic manual stocktakes lead to miscalculations of actual inventory. But automated reordering provides real-time transparency into inventory across the supply chain.
With computer vision and IoT, systems maintain a perpetually accurate inventory record. This corrects shelf-/warehouse-level stock distortions plaguing manual processes.
8. Monitor and Enforce Vendor Performance
Automated inventory management provides detailed visibility into fulfillment metrics like order lead time, fill rate, and shipment accuracy for each vendor and item.
Teams can track orders placed, SLAs committed, and delivery performance. Underperforming vendors can be identified and fixed through systematic compliance monitoring and alerts.
9. Coordinate Replenishment Across All Nodes
For enterprises with warehouses and DCs across geographies, getting a consolidated view of inventories is difficult. Automating the reorder process provides unified visibility and control across the supply chain.
Replenishment is coordinated optimally based on demand and constraints across stocking locations. This minimizes overstocks and stockouts.
10. Create a Lean, Efficient Inventory Function
Taken together, the benefits above create a leaner, more efficient inventory management function. Teams forecast and sense demand more accurately, waste less, turn inventory faster, integrate suppliers tightly, eliminate stock distortions, and manage costs better.
This drives significant working capital and operating cost reductions while improving service levels. Automating reordering is thus a high-ROI initiative.
Technologies Powering Automated Reordering
Several advanced technologies enable automated reordering today:
Artificial Intelligence and Machine Learning – Sophisticated demand forecasting algorithms accurately predict demand and optimize replenishment timing and quantities. Systems continuously learn and improve over time.
Digital Twins – Virtual models of inventory flow across the supply chain provide simulation capabilities to identify and correct bottlenecks before they disrupt operations.
Internet of Things (IoT) – Smart barcode and RFID tags monitor inventory in real-time across warehouse locations and store shelves to enable rapid response.
Robotic Process Automation – Software robots can log into ERP systems and execute purchase orders or inter-company stock transfers based on coded logic. This automates routine workflows.
Big Data Analytics – Collecting and mining inventory data from across the value chain provides rich insights to refine replenishment rules and parameters.
Business Process Management – Tools like automated workflows, alerts, notifications, etc. enable monitoring and management of inventory by exception with minimal human intervention.
The convergence of these technologies creates a connected, intelligent inventory management ecosystem. This drives significant efficiency, working capital, and customer service improvements.
Realizing the Benefits in Your Organization
The business case for automated reordering is compelling. But how can you implement it in your enterprise to realize the benefits?
Here are some recommendations based on insights from advising Fortune 500 companies on supply chain automation:
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Conduct a diagnosis: Map your current inventory management workflows and identify pain points. Quantify costs of stockouts, write-offs, inefficient ordering, etc. This baselines the improvement potential.
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Start small: Run a pilot for high-value SKUs or a specific warehouse before scaling across the network. This allows testing and refinement of the system.
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Integrate systems: Connect your inventory management software, ERP, MES, procurement tools, and other applications for end-to-end visibility and coordination.
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Involve users early: Get stakeholder buy-in through demos and training. Address change management concerns upfront.
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Measure ROI: Define KPIs and track performance against targets. Share wins and soliciting ongoing feedback to drive continuous improvement.
With the right solutions and change management, automated reordering delivers substantial benefits across industries. Now is the time to assess your inventory management processes and envisage the future state enabled by these disruptive technologies.
Reach out to explore options tailored to your supply chain‘s unique needs.