Companies are constantly looking to find ways to make their supply chain process more efficient and to lower costs and resources in logistics. One of these ways is to implement continuous replenishment programs (CRP), which can and has been established like something that sets apart the quality of customer deliveries, lower logistics costs, and overall performance. Efficient Consumer Response (ECR) is supported by CRP and is set apart from Material Requirements Planning (MRP) due to the fact that CRP replenishes inventory only for the amount that has been sold in real time, which means that there will be no specific orders except at these moments. This means that orders will only be placed when inventory is needed and exactly at the amount they are required. CRP can be implemented in a small retail store all the way to other larger industries, by using not only CRP but other methods that allow to have a more efficient use of the inventory. The main goals of the CRP are to increase inventory turns, reduce inventory levels, decrease stock-outs, improve customer service, boost warehouse efficiency and finally enhance partners’ perception of value.
There are many different ways to make the chain better with artificial intelligence, which you can read more about on the David Kiger WordPress Blog, but CRP has become more and more popular because of the many advantages that organizations are noticing when they implement this strategy. The number of employees is lowered to represent a substantial amount of revenue that helps companies become more efficient. The number of full-time equivalent employees (FTEs) can be radically reduced by investing in the continuous replenishment program, from 111 employees per $1 billion to 96 employees per $1 billion. By knowing the inventory levels of all of the participants in the supply chain, which can help by reducing the amount of inventory stored in the warehouses of the customers and suppliers. Organizations who implement continuous replenishment programs can reduce their organization’s expenses on logistics. Despite the fact that there is not a significant difference between companies that implement CRP and the ones that don’t in delivery quality, which is also another big difference, but do have a significant difference mainly in efficiency and cost effectiveness. Strategic Relationships are strong when CRP is implemented due to the efficiency with which the procedures are done, and the cost effectiveness also creates strong business ties to ensure long-term relationships.
Despite the fact that it has many advantages for an organization, in most companies, they decide to implement it in combination with methods that focus on speed and costs. The flow of inventory can be also implemented with ordering point method where the amount of orders will be calculated financially so that the order can be placed when the inventory level reaches the set ordering point or with the replenishment ordering system. In these cases, the one that comes first will be used to ensure that the inventory levels are always at the basic inventory. In the case of other companies, they will need it to combine it and synchronize it with the sales force, whereas in other cases it will be important to synchronize it with production and distribution. These different kinds of companies will need to be adjusted and combined depending on the type of company.
CRP can also be combined with technology, and one of the ones that it has recently be used with quite a lot with Quick Response (QR). QRs are definitely helping to shorten the replenishment process and the lead time involved in reducing the inventory level and improving the level of customer service. QR has proven to create an efficient process that promotes removing excess inventory, which at the end of the day reduces costs by decreasing storage costs. QR has had a huge effect in the CRP process for supply chains, and has allowed companies to rely almost solely in a CRP context. QRs allow companies to go from estimating a shortage cost to explicitly determining it once it’s been adopted in regards to reducing lead times.
A lot of this will come down to being able to forecast customer demand and this is where technology and programs play an important role to ensure that companies can use live data to track customer purchases and focus forecasting. It’s essential to make sure that the tools used by the company don’t have any type of bias when forecasting, which can cause issues and problems when trying to reduce costs and improve inventory management. There are advanced forecasting methods like Box-Jenkins and time series methods. When choosing one of the existing forecasting methods it will be essential to justify the complexity of the model, so that it makes a good fit with your organization and its goals for inventory management.
* Featured Image courtesy of Naval Surface Warriors at Flickr.com