Wouldn't it be great if you only stocked the products that your customers wanted to buy rather than load up your shelves with too much of the wrong thing? 

While that may sound like supply chain nirvana, it's the concept behind demand replenishment. The idea is to 'pull' product through the supply chain in response to actual orders rather than stock product ahead of time and 'push' it out to distributors and retailers who then hope they can sell it.

'Retailers would love it if when I buy one pair of socks in their store, that triggers an order all the way back to the manufacturer to make just one more pair of socks,' says Karin Bursa, vice president of marketing for Logility (404-261-9777), a provider of demand replenishment software systems.

That's an extreme example of demand replenishment, since manufacturers and distributors will always need some buffer stock. But when demand replenishment works, as it does in Dell's build-to-order supply chain, there is less safety stock in the supply chain and less over-production that has to be liquidated at reduced margins.

And while Dell may be the best-known example of demand replenishment, the practice is spreading, especially in retail and automotive supply chains.

The reason is simple: in a market where most competitors carry similar products, the company that can best manage its inventory will get the best margins.

Demand replenishment sounds simple, but it is a radical shift from business as usual.

In the old 'push' model, companies focused on having their factories up and running 99.9% of the time, rather than on what customers were buying.

Demand replenishment, on the other hand, aims to synchronize production and distribution processes with what retail and business customers are actually buying.

The greater the customer demand, the more product that's shipped.

It's no accident that demand replenishment sounds like quick response, just-in-time, CPFR, supply chain collaboration or vendor managed inventory. The practice is the end result of all those previous attempts to reduce inventory in the supply chain and not just move it around.

Today's information management systems are the foundation of demand replenishment. But ultimately those orders have to be filled by a warehouse or distribution center. That leads to a question: is the pull warehouse different than the push warehouse?

The answer is yes, according to Bruce Strahan, general manager for the supply chain practice at The Progress Group (770-804-9920).

'As you get more scientific about forecasting replenishment, you can optimize the amount of inventory you have on hand,' Strahan says. 'But you also need materials handling processes that optimize the operations.'

According to Strahan, there are four best practices distribution center managers should consider to synchronize their information systems with their materials handling processes.

The first is to make sure that replenishment increments fit the storage mode. That means your system is placing full pack, full case or full pallet load orders whenever possible to minimize the picking and handling.

'Your replenishment system needs to know how many cases are on a standard pallet and how many pieces are in a standard case,' says Strahan. 'If you store 50 pieces to a case, and the system creates an order for 48 pieces, there's a huge productivity loss on both ends to pick and handle a split case.'

The second best practice is to re-order in fixed increments that optimize the storage and handling systems in your facility.

For instance, a facility may feed a pick-to-belt case picking line from an eight-lane flow rack storing seven cases per lane. If re-orders are placed in full lane increments, inventory can move from the receiving dock directly to a storage lane rather than into the warehouse. That reduces handling.

Likewise, it's important to analyze how often customers order in full cases. If, for instance, a full case is 50 pieces but customers consistently order 45 or 48 pieces, it may be more efficient to change the size of a case to make operations more efficient.

Finally, Strahan believes distribution center managers should look for opportunities to have suppliers ship directly to their customers or stores.

That is especially true if a supplier can meet your order cycle time, and a supplier's labor costs are cheaper than your own.

'We work with an office product company that replenishes its stores on a daily basis,' says Strahan. 'They stock some products in their warehouse, but rely on wholesalers to stock the rest on a next-day delivery basis. Replenishment is a combination of product stored in their facilities and from wholesalers who can pick and ship to a store the next day.'

While demand replenishment is tantalizing, few companies have the mind-set, let alone the systems, in place to do demand replenishment on a company-wide basis. That's why Strahan advises clients to implement demand replenishment with their slowest moving and lowest risk products first, and with those suppliers with the closest relationships.

But with systems and practices in place to pull rather than push, the opportunity is there to truly take inventory and costs out of the supply chain.

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