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An item’s Replenishment cycle is defined as the number of days worth of inventory you wish to buy or make, which in turn determines the frequency of the recommended orders. This is not to be confused with order review frequency / review period.
Refer to What is a Replenishment cycle? and Order review, review period, look forward days and top-up orders for more information.
Lead time is the time between placing an order for an item from the supplier (or warehouse), and that item being available for sale or use. Simply put, when should you place your order to ensure the stock arrives by a certain date.
Refer to How is the Recommended Order Quantity (ROQ) calculated? for more on ordering levels.
Replenishment cycle refers to “how much” to order while lead time refers to “when” to order. These two settings are independent of each other.
However, a common misconception is that these settings need to be set to the same value. The belief is that if an item has a lead time of 3 months, then the replenishment cycle also needs to be set to 3 months. In other words, order 3 months worth of stock and only place the second order when the first order arrives. This is NOT required and often counterproductive.
It will look something like this:
The replenishment cycle value does not have to be equal to the lead time. In fact, it rarely is. Imagine having a warehouse that can only fit 30 days of stock with a lead time of 90 days. If the replenishment cycle is set to be equal to the lead time (90 days), it means that you’ll be storing 60 days worth of stock outside the warehouse.
Instead, order a reasonable amount by setting a suitable, realistic replenishment cycle. In most cases, multiple orders may be made within a lead time, ensuring that it will arrive only once needed.
Below is an example of where the lead time is 90 days and the replenishment cycle is 30 days. The order date, associated arrival date and lead time have been colored the same.
In fact, the order does not have to be placed the day a previous one arrives. It can be placed mid cycle too. Assume a replenishment cycle of 30 days and a lead time of 85 days.
In conclusion, the replenishment cycle value does not have to be equal to the lead time. Replenishment cycle specifies how much to order while lead time specifies when to order.
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