Inventory Replenishment - Timing is Everything

There are many determining factors used in the calculation of how much inventory to purchase when replenishing your inventory. But first, it is critical that you know when to replenish inventory to prevent a stock out situation from happening.

Kanban System

Some manufacturing companies choose to replenish inventory using a well defined Kanban system where stock is manufactured/replenished on a Just-In-Time basis using Kanban tags or other similar signals. Kanban is a Lean Manufacturing tool that reduces the idle time between operations thereby improving throughput.

Two Bin System

In a two bin system, an inventory replenishment order is generated when Bin #1 is emptied. Theoretically, the quantity in Bin #2 holds enough inventory to cover the replenishment lead time as well as safety stock.

Order Point System

Using an Order Point system, an inventory replenishment signal is generated when the inventory balance on hand (BOH) dips below a predetermined order point. The BOH at the order point should contain enough product to enable the fulfillment of orders during the order lead time as well as enough safety stock to ensure you are protected in the event of demand fluctuations and/or a replenishment disruption.

To calculate your Order Point, you first need to determine a few numbers:

• the lead time for replenishing the inventory
• the amount of safety stock required to buffer fluctuation in delivery or demand
• your annual sales of a particular item