How to Best Understand to Replenish or Replenishment in SAP

ByShaun Snapp

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.

Notice of Lack of Financial Bias: We have no financial ties to SAP or any other entity mentioned in this article.

  • This is published by a research entity, not some lowbrow entity that is part of the SAP ecosystem. 
  • Second, no one paid for this article to be written, and it is not pretending to inform you while being rigged to sell you software or consulting services. Unlike nearly every other article you will find from Google on this topic, it has had no input from any company's marketing or sales department. As you are reading this article, consider how rare this is. The vast majority of information on the Internet on SAP is provided by SAP, which is filled with false claims and sleazy consulting companies and SAP consultants who will tell any lie for personal benefit. Furthermore, SAP pays off all IT analysts -- who have the same concern for accuracy as SAP. Not one of these entities will disclose their pro-SAP financial bias to their readers. 

What is Replenishment?

The term “replenish,” or replenishment, is natural to blend in one’s mind with purchasing. However, the replenishment strategy drives both procured materials and produced materials.

If we start from the basics, to replenish means to fill again. And to replenish stock means to “fill the stock again.” However, when we speak about a replenish definition, we’re not only discussing the inventory to be sold; we’re also referring to the raw materials needed to produce the inventory and support its manufacturing. An effective replenish definition needs to explain that stock replenishment applies to the overall supply network.

What is a Replenishment Triggers in an Automatic Replenishment System?

Replenishment triggers are actions that cause replenishment to occur. This leads the system to replenish stock.

The term replenishment is easy to comingle in one’s mind with purchasing. 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 engage in 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. The objective of supply planning is to minimize inventory and maximize service level.

Where Are the Replenishment Triggers Located?

  • 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).

About Execution Triggers: Planning Versus 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, creating a purchase requisition does not cause anything to happen because a purchase requisition is a planning transaction, not an execution transaction.

Planning is a simulation, or more generally figuring out what to do before one does it. 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 start to happen within the supply chain. The purpose of planning is to perform a sufficient level of simulation such that there is a sufficient improvement in execution. The vast majority of companies underinvest in planning, as the current planning knowledge is still not sufficiently exploited. For example, few companies even know how to use forecast error to drive reductions in forecast error across the entire product location database. Companies are normally unable to address known forecast bias (as we cover in the article How to Understand Forecast Bias), for fear or political reprisals by the powerful and most biased entities in terms of forecasting in the majority of companies: sales and marketing. This is only one example of the lack of application of known methods for improving planning, there are many more.

Where Are Execution Triggers Located?

  • 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 illustrate the differences between a planning trigger and an execution trigger is the KANBAN functionality within some ERP systems.

Replenishment Terms

Replenishment has a vast number of related terms that 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

Let us go over each of these:

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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. 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 – ERP, external supply planning, 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 a 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 easy for supply chain people to understand how replenishment is different from regular inventory and procurement management. Part of it is that replenishment is a general term meaning to 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 primarily collaborated very actively with some of its largest suppliers to share information. Inventory balances in stores were known and possibly even controlled by inventory management at the supplier.

Applicability of the Wal-Mart Case Study To an 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 globally, which means they had the leverage to push through CPFR; smaller retailers do not have this same bargaining power.
  • Wal-Mart is known for its 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 firmly 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

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

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