Allocation

Allocation is the process of assigning available inventory to specific orders, customers, or sales channels. When demand exceeds supply, allocation rules determine who gets the limited stock—ensuring fair distribution and strategic fulfillment.

How Allocation Works

Basic Concept

Available inventory: 100 units
Orders received: 150 units

Without allocation:
- First orders filled, later orders backorder

With allocation:
- Rules determine distribution
- May split among customers/channels

Allocation Process

1. Orders received
2. System checks inventory
3. Allocation rules applied
4. Inventory reserved
5. Orders fulfilled
6. Remaining goes to backorder

Types of Allocation

Order-Level Allocation

• Reserve for specific orders
• First-come, first-served
• Priority-based
• Customer tier based

Channel Allocation

Customer Allocation

Priority tiers:
Tier 1 (VIP): Fill 100%
Tier 2 (Regular): Fill 75%
Tier 3 (New): Fill 50%

Allocation Strategies

FIFO (First In, First Out)

• Orders filled by receipt time
• Simple and fair
• May disadvantage key customers

Priority-Based

• VIP customers first
• High-margin orders
• Strategic accounts
• Time-sensitive needs

Fair Share

• Proportional allocation
• All get percentage of request
• Maintains relationships
• Spreads shortage impact

Hybrid

• Combine strategies
• Context-dependent rules
• Balance competing needs

Allocation Rules Engine

Rule Components

Example Rules

Rule 1: IF customer = VIP
        THEN allocate 100%
        PRIORITY: High

Rule 2: IF channel = Website
        AND product = Bestseller
        THEN allocate max 10/order
        PRIORITY: Medium

Rule 3: DEFAULT
        THEN allocate FIFO

Available-to-Promise (ATP)

Definition

The quantity available for new orders after accounting for:

• Current inventory
• Incoming supply
• Existing commitments

ATP Calculation

On-hand inventory: 500 units
Already allocated: 300 units
Incoming (PO): 200 units

ATP = 500 - 300 + 200 = 400 units

Allocation Timing

When to Allocate

Soft vs. Hard Allocation

Soft allocation:
- Reserved but can be reallocated
- Expires after time period
- Flexible

Hard allocation:
- Committed, cannot change
- For picking/shipping
- Final

Managing Allocation

When Demand Exceeds Supply

1. Identify shortage
2. Determine allocation rules
3. Apply to pending orders
4. Communicate with customers
5. Monitor and adjust

Communication

Partial allocation notice:
"Due to high demand, your order of
10 units will ship in 2 parts:
- 6 units: Ships tomorrow
- 4 units: Ships Feb 15 (backorder)"

Allocation Challenges

Common Issues

Balancing Act

• Fill VIP orders vs. fairness
• Channel commitments vs. flexibility
• Current sales vs. future demand
• Margin vs. volume

Technology for Allocation

System Requirements

• Real-time inventory visibility
• Rule engine capability
• Order management integration
• Multi-channel support
• Reporting and analytics

Allocation in OMS/WMS

• Automatic allocation
• Manual override capability
• Exception handling
• Audit trail
• Performance metrics

Allocation Metrics

Key Indicators

Best Practices

Strategic

1. Define clear allocation policies
2. Prioritize based on business goals
3. Review and adjust regularly
4. Plan for shortage scenarios

Operational

1. Maintain inventory accuracy
2. Update rules as needed
3. Communicate proactively
4. Monitor and report