Continuous Replenishment Can Boost Logistics Efficiency

This is an excerpt of the original article. It was written for the May-June 2014 edition of Supply Chain Management Review. The full article is available to current subscribers.

May-June 2014

Getting the most from Sales and Operations Planning is a combination of people, processes, and technology. The Red Wing Shoe Company details the steps it took to improve S&OP processes, slash its S&OP planning efforts by 50 percent, and align manufacturing with sales—all while growing its business.

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To streamline their deliveries to customers, many organizations have adopted continuous replenishment programs. By monitoring customer inventories and automatically replacing used materials when needed, these organizations have also taken steps to improve their operations by eliminating the need for purchase orders and other related paperwork. Continuous replenishment programs offer the additional potential to create close relationships with customers that can increase customer loyalty.

According to APQC’s Open Standards Benchmarking in logistics, only a slight majority (57 percent) of participating organizations have implemented continuous replenishment programs for their customers. Of this group, 27 percent have extensively implemented these programs. To determine whether these programs offer the potential for superior logistics performance, APQC compared the logistics performance of organizations that have adopted these programs against that of organizations that have not adopted continuous replenishment. The data indicates that the two groups have similar inventory carrying costs, but that organizations with continuous replenishment programs need fewer full-time equivalent employees (FTEs) in logistics, have a higher perfect order performance rate, and ship a greater amount of their sales orders as part of full-load shipments.

Inventory and Staffing Needs
APQC’s data indicates a similar inventory carrying cost for organizations that have and have not implemented continuous replenishment programs. At the median, organizations that provide these programs for their customers have a 4 percent inventory carrying cost as a percentage of their average inventory value. Organizations that have not implemented these programs have an inventory carrying cost of 4.2 percent of their average inventory value.

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