Ask the Expert: Whats Replenishment Got to Do with It?

EDITOR’S NOTE: Questions and answers were previously published on 8th & Walton’s blog.

8th & Walton’s social media followers often ask questions that cannot be answered in one or two sentences.

For those inquiries, 8th & Walton takes to its blog, regularly tapping industry experts to answer supplier’s questions on Walmart, Retail Link, accounting and e-commerce for its “Ask the Expert” column.

Here are two recent questions, asked and answered by the experts.

Q: Do I even want to be 100 percent in-stock? Currently, each of our items has an in-stock threshold of 99 percent. How big a difference is 1 percent?

A: In retail, there will always be a push and pull between these competing demands: to drive sales and to maximize profit. One might think maximum inventory leads to maximum sales, which guarantees high profitability — but the experts say that is not necessarily true.

To drive sales, a retailer must offer as much product as its customers might reasonably buy, because if the product is out-of-stock, the potential for sales is zero.

To maximize profitability, retailers must control the flow of inventory to optimize turns.

The experts say both suppliers and retailers should strive to ensure shelves are fully stocked at all times. The goal is to never have a customer who is looking for the company’s product leave the aisle empty-handed, and this requires a strong collaborative effort with the buyer, logistics team and replenishment manager.

According to retail expert Joel Graham, a consultant at 8th & Walton and 20-year veteran of Sam’s Club, the average inventory threshold for Walmart suppliers is 95 to 98 percent. The minimum acceptable threshold — or the “we’re-beginning-to-worry-about-you” range — is 95 percent.

So how important is that 1 percent? Very. Being out-of-stock one time could mean a loyal customer changes his or her habit.

“In my experience with replenishment at Sam’s Club,” says Graham, “a 100 percent in-stock threshold can cause significant overstock issues over time, which presents challenges for both retailers and suppliers.”

Graham’s advice to suppliers is this: “Identify the root cause of your out-of-stocks. That will determine your best course of action. Find ways to work creatively with your buyer and logistics team and also leverage your relationship with your replenishment manager. Their role is to control the flow of inventory and to help you manage your assets.”

Q: What is the difference between an assortment and a shipper?

A: This might seem simple, but the 8th & Walton team found multiple, at times contradictory, answers to this question and decided to take it to the “Ask the Expert” column.

Here are a few key terms that are related to the question:

• An assortment is more than one item with different UPC codes grouped together for shipping and/or ordering purposes;

• A parent or prime is the Walmart item number representing group of individual items to be ordered;

• A child is the individual items that are under the parent item;

• Replenishable items are automatically reordered when inventory reaches a predetermined level;

• Nonreplenishable items will not automatically reorder.

There are two classifications for assortments: like assortment and shipper.

The biggest difference between like assortments and shippers is how a buyer wants the items to be replenished.

A like assortment can be either replenishable or nonreplenishable as a whole, but the child items are not individually replenishable. A shipper is the opposite — the entire assortment is nonreplenishable, but the child items can either be replenishable or nonreplenishable.

Replenishment expert Danetta Manos, former business analyst for L’Oréal and Unilever, says, “It’s important to get this right the first time. Item file errors can cause challenges from replenishment to deductions.”

She added, “Keep in mind that the person talking with the buyer is generally in sales, while the person doing item file creation is an analyst. It is essential that the salesperson asks the right questions in their buyer meeting and communicates effectively with the analyst team.”