In the ideal distribution world, product would be replenished on a store shelf as soon as a sale took place. Although instantaneous replenishment is not really possible, companies are getting closer to achieving true demand replenishment than ever before, according to John Fontanella of AMR Research (www.amrresearch.com). Fontanella spoke at the Retail Systems conference in Chicago in late June.

No company is running a full-blown program of demand replenishment today, Fontanella said, but he has seen successful pilots by food distributors and by retailers of health and beauty products.

The results so far have been impressive. Companies that move toward replacing products as soon as they are consumed have been able to reduce inventories by 15 to 30 percent, increase sales by 3 to 12 percent, decrease out-of-stock merchandise between 50 and 80 percent, and reduce labor by as much as 80 percent.

"I have not talked to any company that has employed these techniques and not seen positive results," Fontanella said.

Several factors will affect the success of any demand replenishment program. Companies that are used to change, are inclined toward new technologies, have motivated store staffs, and have experience working in "pull" environments will find it easier to adapt to demand replenishment requirements, Fontanella said. Most important for success is determining which data should be collected at the retail store level and which information in particular should be used as the basis for determining forecasts and replenishment levels. Companies also must decentralize decision-making and push more control down to the store level, he added.

Another important factor is the ability of the distribution center to develop a quick-response mentality, Fontanella said. In addition, any demand replenishment program should be scalable so that it can be rolled out over time as the user gains confidence.

Not only do inventories, labor requirements and out-of-stock inventory levels decrease with demand replenishment, but sales also typically increase, says Fontanella of AMR Research.