How to Best Understand to Replenish or Replenishment in SAP

Executive Summary

  • Supply chain planning systems are intended to improve replenishment.
  • We cover automatic replenishment system or a continuous replenishment program, retail replenishment and replenishment triggers.
  • We cover where replenishment is found in SAP.

Introduction: Replenishment as the Objective of Supply Chain Planning

Replenishment is the name of the game for supply chain planning and is when orders are triggered in the supply network. You will learn how replenishment fits into the overall supply chain picture and where it is found in SAP.

What is Replenishment?

The term “replenish,” or replenishment is natural to commingle in one’s mind with purchasing. However, the replenishment strategy drives both procured materials and produced materials. To replenish simply means to fill again. But when we speak about a replenish definition, we’re not just discussing the inventory to be sold; we’re also talking about the raw materials needed to produce the inventory and support its manufacturing.  A replenish definition needs to explain that stock replenishment applies to a supply network.

What is a Replenishment Triggers in an Automatic Replenishment System?

Replenishment triggers are actions that cause replenishment to occur. The term replenishment is easy to comingle in one’s mind with purchasing. However, the replenishment strategy drives both procured materials and produced materials. To replenish simply means to fill again. But when we speak about replenishment, we’re not just discussing the inventory to be sold, we’re also talking about the raw materials needed to produce the inventory and support its manufacturing. To understand this complex system of supplies that will need replenishing, let’s talk about supply networks.

The analysis work that planners stems from this question: when will each stocking location run out of any given material good? Supply planning systems only need to replenish the stocking location when there is good reason to do so, as the objective of supply planning is to minimize inventory and maximize service level. Across a supply network there are both planning and execution triggers. Some of these triggers are system determined – either ERP, external supply planning system, or warehouse management. Some triggers are external to the system. No matter whether the trigger is system generated or generated by a buyer or IT specialist, all replenishments are,at some point, reflected in the supply planning system with both a transaction (acquisition or goods or sale or product)and a change to the stock holding position at the stocking location.

Execution Triggers

Supply chain management can be segmented into planning and execution areas. Planning looks into the more distant future and attempts to make decisions that put the supply chain in the best possible position to meet demand given certain restrictions. Execution is the actual doing, the execution of the plan. For instance, creation of a purchase requisition does not cause anything to actually happen, because a purchase requisition is a planning transaction, not an execution transaction. However, once a purchase requisition is converted into a purchase order – now the order is sent to a supplier and, at that point, the “wheels” begin turning. Accounting entries are posted and physical things begin to happen within the supply chain.

Execution triggers exist in both ERP systems and warehouse management or WM systems. One example of an execution replenishment trigger in an automatic replenishment system that will be explained in order to illustrate the differences between a planning trigger and an execution trigger is the KANBAN functionality within some ERP systems.

Replenishment Terms

Replenishment has a wide number of related terms which are used in supply chain management.

  1. Inventory Replenishment or Stock Replenishment
  2. Replenishment Stock or Replenish Stock
  3. Inventory Replenishment Methods
  4. Inventory Replenishment System
  5. Replenishment Planning
  6. Automatic Replenishment System, Auto Replenishment or Continuous Replenishment Program
  7. Retail Replenishment

1. Inventory Replenishment or Stock Replenishment

Inventory replenishment or stock replenishment is the act of replenishing the inventory in the system. Inventory replenishment or stock replenishment can be considered a primary objective of supply planning as it provides replenishment stock to the right locations.

2. Replenishment Stock or Replenish Stock

Replenishment stock or replenish stock is stock that is brought into the supply network for replenishment purposes. Replenishment stock or replenish stock is not normally called out as such or specifically, as it is implied that it make to stock manufacturing environments, the stock is all in some way replenishment stock or replenish stock.

3. Inventory Replenishment Methods

Inventory replenishment methods are the techniques used to make decisions as to how much and when to bring in replenishment stock. Inventory replenishment methods are mathematical. One inventory replenishment method is called reorder point. Another inventory replenishment method is MRP. Inventory replenishment methods are implemented in the computerized era with an inventory replenishment system.

4. Inventory Replenishment System

The inventory replenishment system is software that performs the calculation of replenishment using the planned stock on hand, planned issues and receipts and sometimes goals like service levels to calculate the replenishment stock. The most common inventory replenishment system is ERP, but there are many other systems that are more sophisticated in terms of replenishment calculation. The inventory replenishment system is strongly connected with the concept of replenishment planning.

5. Replenishment Planning

Replenishment planning is the forward calculation of replenishment stock. Replenishment can be execution in orientation, such as when an empty bin triggers a replenishment signal, or it can be replenishment planning focused where the replenishment order is based on forward-looking calculation.

6. Automatic Replenishment System, Auto Replenishment or Continuous Replenishment Program

Automatic Replenishment system, auto replenishment or a continuous replenishment program is simply replenishment logic that is automated. The use of the terms automatic replenishment system, auto replenishment or continuous replenishment program harken back to the pre-computerized age when stock replenishment was calculated on a periodic basis and by hand. Today some consulting companies and software companies use the term auto replenishment or continuous replenishment program as sort of buzzwords. Automatic replenishment system, auto replenishment or continuous replenishment should simply be synonymous with the inventory system.

7. Retail Replenishment

For whatever reason, replenishment is often associated with replenishment stock sent to retail locations. Interestingly, even SAP has a software application called Forecast Replenishment or FR, that is all about retail replenishment. It’s unclear why this association with retail exists, but it is inaccurate. Replenishment applies equally to all parts of the supply network, not only to retail replenishment. Retail replenishment is the same activity as replenishing any other location.

Replenishment Planning Activities

The analysis work that planners stem from this question: when will each stocking location run out of any given material good?

Supply planning systems only need to replenish the stocking location when there is good reason to do so, as the objective of supply planning is to minimize inventory and maximize service level. Across a supply network, there are both planning and execution triggers. Some of these triggers are system determined – either ERP, external supply planning system or warehouse management.

Supply Planning System Generated Replenishment Triggers

These stock replenishment triggers are created through planning runs – or automated procedures that take demand or consumption and create automated replenishment recommendations. The demand-oriented supply planning system replenishment triggers are forecasts and sales orders – or projected demand and confirmed demand. The consumption-oriented replenishment triggers are based upon the monitoring of stocking locations – and triggered when the stocking location falls below a preset level.

  1. Forecasts: This is unconfirmed demand. It is what the company thinks it will sell.
  2. Sales Orders: This is confirmed demand.
  3. Reorder Point: This is a trigger based on the stock level. If the stock level or the projected stock level (some supply planning systems will trigger a replenishment based upon a projected stock level rather than a current stock level) is below the order point, then a new replenishment order is created.

Execution Replenishment Triggers

Supply chain management can be segmented into planning and execution areas. Planning looks into the more distant future and attempts to make decisions that put the supply chain in the best possible position to meet demand given certain restrictions. Execution triggers exist in both ERP systems and warehouse management or WM systems.

CPFR

It can be difficult even for supply chain people to understand how replenishment, is different from normal inventory and procurement management. Part of it is that replenishment is a general term meaning to simply restock or refill. Replenishment is highly connected to a concept called CPFR – Collaborative Planning, Forecasting, and Replenishment.

This is not to say that replenishment cannot occur without it, only that it is a driving concept behind replenishment and replenishment functionality in SAP.

We have included a definition of CPFR from Wikipedia below:

“CPFR seeks cooperative management of inventory through joint visibility and replenishment of products throughout the supply chain. Information shared between suppliers and retailers aids in planning and satisfying customer demands through a supportive system of shared information.”Wikipedia

Case Study of CPFR

The case study always mentioned in both CPFR and replenishment is Wal-Mart. Wal-Mart essentially collaborated very strongly with some of its largest suppliers to share information so that inventory balances in stores were known and possibly even controlled by inventory management at the supplier.

Applicability of the Wal-Mart Case Study To a Automatic Replenishment System Generally

While Wal-Mart is known for a high in-stock position and low-cost replenishment, a few problems are attempting to generalize the CPFR experience to other accounts.

  • Wal-Mart is the largest retailer by a wide margin in the world, and this means they had and have the leverage to push through CPFR, smaller retailers do not have this same bargaining power
  • Wal-Mart is known for very effective IT investment and has been a leader in this field for some time, including satellite uplinks at its stores. Not every retailer has the scale economies to benefit from this type of IT investment
  • Wal-Mart is strongly operationally and industrial engineering oriented. However, many retailers are not. The fashion retailers – The Limited, etc.., are run by merchants, not industrial engineers, so they lack the orientation and capability of Wal-Mart in IT or operations

Where is Replenishment Found in SAP?

Replenishment functionality in SAP exists in the following areas:

  • SAP IS Retail
  • SAP PP
  • SAP SCM F&R
  • SAP SCM SNC

SAP IS Retail

Can be run in two different ways

  • Replenishment for site (or internal replenishment)
  • Replenishment for external customers (the CPFR model)

SAP PP

Production planning has some replenishment strategies that are for internal production planning, that is quite a ways from our discussion on this topic, but we did want to note that it does exist in PP as well.

SAP F&R

This is a mystery module, and we have never heard of it implemented. We discuss this module at this article.

SAP SNC

SAP Supplier Network Collaboration supports some different procurement methods, of which replenishment collaboration is one. This is covered at this article.

Conclusion

The terms…

  • Inventory Replenishment
  • Stock Replenishment
  • Replenishment Stock
  • Replenish Stock
  • Inventory Replenishment Methods
  • Inventory Replenishment System
  • Retail Replenishment
  • Replenishment Planning
  • Automatic Replenishment System
  • Auto Replenishment
  • Continuous Replenishment Program

…are all used in supply chain management.

They all relate to what is the primary objective of supply planning, which is to move stock into the system at the right place and the right time.

The concept of what is referred to as “automatic replenishment system” really just means the computerization of replenishment. At one time there was a term called periodic ordering. This is really a term applied in the pre-computerized period where groups of product locations were placed upon a schedule for recalculation, because they need to be calculated by hand.

Considering an Automatic Replenishment System Versus a Correct Replenishment System

However, just because it is an automatic replenishment system, does not mean that it is ordering the right amounts or making the right outcomes. A major issue is that while supply planning applications have been around for decades (both MRP and more advanced external supply planning systems) the problems with these systems is they are still complicated to manage. These systems more often than not overwhelm the ability of companies to properly manage them.

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References

Replenishment Triggers Book

Replenishment Triggers

Getting the Terminology Right

The terms make to order and make to stock roll quickly off of people’s tongues regardless of their knowledge of other supply chain conditions. Many executives speak about “moving to make to order environment.” For most companies, this simply is not realistic. And many businesses that say they do make to order/configure to order/engineer to order are doing assemble to order planning.

The Universality of The Manufacturing Environment Type

These terms are specific types of manufacturing environments. They are embedded in almost all supply planning applications ranging from the most basic ERP to the most sophisticated advanced planning system. However, each manufacturing environment leads to some implications, implications that are most often not completely understood.

Getting Clear on Requirements Strategies

Requirements strategies are what control what drives the replenishment of supply in systems. In most cases, the need strategies control whether the forecast or the sales order triggers replenishment.

This book cuts down the amount of time that is required for people in companies to understand the relationship between manufacturing environments (the business) and requirements strategies (the technology setting in the supply planning application).

By reading this book you will learn:

  • What are the major manufacturing environments and what determines which manufacturing environment a company follows?
  • How do the different manufacturing environments impact how inventory is carried?
  • How are the various production environments configured in software?
  • What is mass customization, and how accurate is useful is this concept in real life?
  • What is the interaction between variant configuration and the manufacturing environment and the bill of materials?

Chapters

Chapter 1: Introduction
Chapter 2: The Different Manufacturing Environments
Chapter 3: Triggering Replenishment
Chapter 4: Requirements Strategies
Chapter 5: The Make to Order Illusion
Chapter 6: The Limitations to the Concept of Mass Customization
Chapter 7: Forecast Consumption
Chapter 8: Variant Configuration in SAP ERP
Chapter 9: Conclusion