In a business, stock will be received and consumed by customers. More stock will be received and more will be consumed. We see that a pattern or cycle starts to develop whereby stock is received and consumed. This cycle or time period between receipts is referred to as the Replenishment cycle.
The replenishment cycle (RC) is a fundamental concept in inventory management. It determines the amount of stock, specified in days, to be purchased when a recommended order is triggered. Understanding this concept is essential for effective inventory planning and management.
An item’s Replenishment cycle is defined as the desired time-based plan for which received stock should cover future demand which in turn specifies the frequency of replenishment. When an order is placed, the unit quantity is calculated by projecting the forecasted demand over the replenishment cycle's length.
In simpler terms: Every time you order an item, you wish to order X many days worth, so it can last you X many days until you have to order the next batch of X many is delivered by the supplier. Every time stock is received for an item, you wish to have it cover X many days worth before the next batch of stock is received. This directly affects how frequently orders are placed - a longer replenishment cycle means less frequent orders with higher quantities, while a shorter cycle increases order frequency but reduces quantity per order.
The Replenishment cycle is specified in days instead of units. It automatically converts to units by looking at the forecast. This means that a beach towel with a Replenishment cycle of 30 days will convert to more units over summer months than over winter months.
Refer to How do the replenishment cycle units get computed? for more.
Examples
What would the Replenishment cycle be if we sell 100 units a month and we order 200 units at a time?
Answer: 60 days
What would the Replenishment cycle be if we sell 100 units a month and we order 50 units at a time?
Answer: 15 days
The Replenishment cycle for an item will be specified by the app user. By adjusting the replenishment cycle parameters, users can balance operational needs with stock availability and minimize stockouts or overstocking issues based on their business's specific requirements.
Understanding and managing the replenishment cycle is critical for efficient inventory operations. By tailoring this parameter to your business's specific needs, you can optimize order frequency and stock levels, ensuring a smooth and effective supply chain.
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