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What is Product Allocation?
Product allocation—also commonly referred to as inventory allocation—is the process by which businesses disperse, track, and manage inventory across their distribution networks and sales channels. Product allocation, done right, enables businesses to maximize sales while minimizing overstocking and stockouts, ensuring that inventory is in the right place at the right time.
For businesses of all sizes and in every industry, product allocation is crucial to efficiently distributing products across channels and balancing customer demand with available supply.
While product allocation can be very complex, a properly designed product allocation strategy can help businesses meet customer demand, increase sales, decrease storage and shipping costs, and reduce waste—delivering significant savings and profitability.
Methods of Product Allocation
A good strategy begins with selecting a product allocation method: equal, trend, or seasonal allocation.
Equal Allocation
Equal allocation means businesses distribute products equally between their various sales outlets. For instance, say a retailer with three brick-and-mortar stores sells water bottles. In equal product allocation, each of those three stores would receive the same number of water bottles in the same styles and colors. This method is typically chosen by new businesses or those with limited inventory.
Trend Allocation
If a specific product is becoming popular in a certain location, region, or country, businesses can strategically distribute their products so that each outlet has what it needs to meet the trending customer demand.
Seasonal Allocation
Seasonal allocation is based on the weather. For example, businesses that sell umbrellas may see fit to send more of their product to the rainiest cities—such as Hilo, Hawaii, which receives 211 rainy days a year. But of course, they’ll also want to do their demand research first. It’s well known that the residents of Seattle—which receives an average of 152 rainy days a year—tend to ignore the rain and equate umbrellas with tourists.
Benefits of Product Allocation
When businesses follow a well-designed, forward-thinking product allocation strategy, they’ll experience the following benefits.
1. Optimized inventory:
Inventory distributed to the right places at the right time enables businesses to avoid the fallout that comes with costly overordering and stockouts.
2. Increased revenue and reduced costs:
Optimized inventory equals effective and accurate product allocation, which results in increased revenue and reduced waste and additional costs. Product doesn’t languish on shelves; customers get what they want, when they want it; and businesses know exactly where the product is and where it should be sent, which saves shipping costs and time.
3. Improved customer satisfaction:
Product allocation done well ensures that customers are satisfied and their demands are met. Businesses that adhere to this customer-first philosophy create a loyal customer base.
Challenges and Best Practices in Product Allocation
Success with a particular product allocation strategy doesn’t come without challenges. These can include an unanticipated rise in demand for a specific product, supply chain issues that create product scarcity, and poor decision-making due to unreliable data. Businesses can follow three simple best practices to overcome these and other challenges.
1. Demand planning:
Demand planning involves forecasting demand based on real orders, sales projections, and statistical forecast models. It provides businesses with continual insights into how a product is selling, how much product they should order, and to which point of sale location(s) they should allocate the product.
2. Inventory tracking:
Businesses must constantly monitor their fluctuating inventory levels to reduce the chance of suffering from an excess or lack of product.
3. Automatic allocation:
Automatic allocation is possible through the implementation of modern inventory management software that’s integrated within a full-featured, cloud-based ERP solution. Such software eliminates manual data processing, enables rules-based mass allocation, and increases efficiency with streamlined workflows.
Real-World Application of Product Allocation
Timebomb Trading Inc., a Canadian based distribution company with multiple points of sale (online, in-store), is a good, real-world example of a business that successfully used inventory management software and the right ERP solution to perfectly align their inventory levels with product demand.
Timebomb Trading ran on a legacy, on-premises Sage ERP system along with various disconnected applications, including Shopify for eCommerce, Elastic for B2B, and EasyPost for shipping. These solutions couldn’t integrate with the company’s financial system, making the whole stack prone to instability and time-and-cost-consuming crashes.
Not surprisingly, Timebomb had numerous inventory issues, including:
- Hourly updates, which couldn’t catch high-demand items that went out of stock within the hour.
- Time-consuming manual data entry of thousands of new SKUs every three to four weeks.
- An inability to efficiently track orders—which are sold and distributed via a B2B platform, Shopify webstore sites, and Timebomb’s limited online store.
Timebomb executives needed a reliable, comprehensive ERP solution that could connect their disparate systems, provide remote capabilities, eliminate manual data entry, and streamline communications and operations. After comparing several options, including Oracle NetSuite, the company chose Acumatica’s affordable cloud ERP solution, implementing Acumatica Distribution Edition for its order fulfillment, shipping, financial analysis, reporting, and inventory management features.
Says Lester Yuen, Vice President of Operations & Finance, “Now that everyone is using Acumatica, it’s one place to go to do their job. It’s made a big improvement having all that information in one platform, no more digging around wondering if the data is correct.”
The Timebomb team can now instantly view retail purchases, know what each account has on order, and allocate apparel based on accurate inventory accounts. SKUs are generated automatically, saving money and resources, and the company can now perform bulk allocation based on retailer preferences.
Per Timebomb’s success story, the bulk allocation functionality “helps retailers better plan for the new inventory and gives them confidence, making them more likely to consider additional lines and apparel products Timebomb brings their way.”
Working in the fashion industry, Timebomb needed an affordable, scalable, and flexible ERP solution, and they found it in Acumatica.
“Fashion tastes and trends evolve very quickly, so being fast to respond and agile as a business is key,” Yuen says. “We need to get data in and out rapidly to meet and get ahead of the market to remain an industry leader in our category.”
Conclusion
A strong product allocation strategy empowers businesses to distribute product effectively, getting it to the right place at the right time. And businesses that implement the right product allocation software, like Acumatica, save time, money, and resources with automated, mass product allocation—all while being able to proactively respond to an ever-evolving market.
To learn more, contact our team today.
