Product Allocation- Your Complete Guide

Virginia Miller

October 11, 2023

What is Product Allocation ?

Product Allocation is a planned inventory approach utilized when the number of available products for purchase is limited. Allocating products correctly necessitates dispersing, monitoring, and controlling eCommerce inventory throughout your distribution and sales channels to satisfy client demand as effectively as feasible. This helps ensure that the appropriate amount of supply is delivered to the right clients properly.

Although tiny eCommerce businesses can allocate products manually, most of today's online retailers assign products utilizing inventory control technologies. This saves time, reduces human error, and enhances the efficiency of the supply chain. In addition, it's beneficial for vendors who keep inventory in numerous places or sell through multiple platforms. They also demand forecasting, which involves anticipating future sales based on historical sales data to make intelligent inventory policy decisions that can lessen product allocation requirements.

Product Allocation Types, Benefits and Best Practices for eCommerce Businesses

Product availability is critical for both online businesses and their clients. As a result, when it comes to allocation techniques, most eCommerce businesses choose equal allocation, trend allocation, and seasonal allocation.

Types of Product Allocation

Equal Allocation

This product allocation strategy, also referred to as universal allocation, allocates your complete product line uniformly across your distribution system, providing each distribution center an identical amount of every in-stock SKU. If you also have physical stores, you should keep the same stock levels for virtual sales at each actual retail location.

Trend Allocation

Trend allocation, as the names suggest, allocates inventory depending on which items are surging where. Fitness fashions, for instance, usually begin in California. If you sell fitness items, you may want to explore distributing inventory among different fulfillment centers while keeping the majority of them close to the West Coast.

Seasonal Allocation

A seasonal allocation approach, like trend allocation, stores inventory in areas dependent on weather conditions. For instance, if you offer sweaters, you might keep a lot of your merchandise in the Midwest or East Coast; if you sell swimsuits, you might take most of your collection in Florida.

Benefits of Product Allocation Planning

Product allocation planning may help eCommerce businesses (as well as those with physical storefronts) in various ways. Here are the top advantages of having a compelling product allocation strategy.

1. Inventory Allocation Management

Based on the market, an intelligent product allocation strategy assists you in determining where to store goods within your eCommerce supply chain. You can save on inventory storage expenses by optimizing inventory levels without overstocking in multiple locations using one of the product allocation methods we just covered. You'll also prevent stocking too little, which can lead to stockouts and backorders, which can harm your end result and credibility.

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2. Reducing Inventory Waste

Inventory can go to trash and become unmarketable "deadstock" if there is a lack of demand near the place where it is housed. This can also lead to sites with the solid market being underserved. Product allocation is essential for ensuring that you have the proper amount of stock in the right spot at the right time.

3. Improving Your Knowledge Of Customer Behavior

As previously stated, many eCommerce shop owners assign products based on forecasts, which necessitates maintaining existing order data. This allows you to acquire insights into your customers' purchasing habits, such as: when they are most likely to buy your items, which product lines are more famous than others, how much they believe all at once, how likely they are to reclaim a product, and so on. Each of these habits can assist you in making more informed judgments about how much inventory to retain or where to store it.

4. Lowering Shipping Costs And Transit Times

When inventory is held distant from its end location, shipping prices rise because it must go through additional shipping zones. The more areas you have, the more you'll have to pay. Of course, the greater the distance a product must travel, the longer it will arrive at its destination, which can further disappoint buyers.

5. Increasing Customer Satisfaction

Consumer experience, or CX, refers to its image as they progress through the purchase journey. This path encompasses every contact you have with your organization, including the ordering procedure. Stockouts, backorders, and shipment delays due to a lack of inventory result in a negative customer experience. However, by appropriately arranging products, you may provide a better consumer experience. Customers are five times more inclined to repurchase after a positive CX and four times more prone to promote the firm to others, so it's a win-win situation.

6. Store Allocation Optimization

You keep merchandise in places close to your customers to decrease shipping charges and transit delays (customers demand quick delivery). If you have both an online and physical business, you'll want to look at past data to discover where most of your sales are coming from.

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Product Allocation Best Practices

There are several ways to allocate products based on your supply chain properly. Here's a rundown of excellent practices for product allocation:

Utilize Product Distribution Software

Employing tools to monitor inventory as you move into new service offerings, distribution sites, and markets will come in handy, minimize human error, and build a more effective supply chain.

Various inventory applications on the market interact with the most major eCommerce sales channels, from Shopify to Amazon to Facebook, and link to your technology stack, designed to track inventory from a single dashboard.

Utilize Demand Forecasting

Demand will always fluctuate, but it doesn't indicate you can't utilize data to make intelligent decisions. Demand forecasting is one of the most effective methods for properly allocating merchandise across your distribution centers and channels.

Scenario planning can also assist you in making informed choices in other areas of your business, such as whether to run a campaign or quick sale, when to hire more workers, how much storage space you will require, and so on.

Maintain Adequate Inventory Levels

Among the essential components of inventory management is keeping an ideal amount of inventory (also referred to as stock control), which includes everything from managing stock levels in a warehouse(s) to balancing inventory storage costs to ensuring constant stock to fulfill consumer demand.

Bottom Line

Product allocation is critical for eCommerce organizations because it encourages inventory control and allows for distribution growth across sales channels and locations. In addition, a product allocation strategy can assist online retailers in forecasting demand, better understanding purchasing behavior, optimizing storage costs, and avoiding stockouts to ensure consumer demand is satisfied.

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