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Allocation: An Untapped Opportunity to Maximize Return on Inventory Investment

We all know the old saying: right inventory, right place, right time (right size for apparel/footwear). Over the years in my travels through retail, I have often found that many allocation processes don't necessarily add meaningful value to the time invested in the buying, assorting and planning processes. If we consider how much time is spent designing, developing, planning, assorting and producing merchandise, and consider how much (typically less) time and resources are devoted to allocation, I think we can agree that more focus is needed to achieve more precise allocations.

As inventory is either our biggest asset or our biggest liability, how each unit is allocated can be equated to how each inventory dollar is invested. The return on that inventory investment can either be very rewarding or extremely disappointing. Best-in-class retailers understand the direct relationship between allocation and inventory ROI, and their allocation teams are regarded as a critical part of the merchandise lifecycle management process.

Establishing strong business processes throughout the merchandise lifecycle is the foundation for achieving desired return on inventory investments. When designing allocation processes, it is critical that effective decisions are made – and communicated - before the goods arrive at the point of distribution. Understanding key components like the life of the item, the target customer segment, the size range and the flow is critical to ROI-driven allocation.

Of course, the technology in place for managing allocation also plays a big role in supporting an optimized and lifecycle-driven allocation process. When evaluating Allocation & Replenishment solutions, it's important to note that some solutions offer out-of-the-box allocation logic, some solutions require users to create all their own logic, and still others – including Aptos Allocation and Replenishment – offer both out-of-the-box logic as well as the ability to create user-defined logic.

Because most out-of-the-box allocation logic is typically very basic, tools that offer user-defined calculations are highly recommended. User-defined calculations allow specific instructions based on things like location attributes, product attributes or multiple time dimensions to be combined with many mathematical functions to create powerful user-defined calculations. Since the information available to make decisions varies at each point in the lifecycle, how to leverage that information for each item should be incorporated into your Allocation and Replenishment solution.

The next important criteria in evaluating a solution is whether you have the ability to setup distributions for automatic allocation or whether distributions need to be setup manually. Of course, the goal here is efficiency. It is simply not efficient for a user to manually allocate each item, nor is it efficient for the distribution center to wait until it actually receives the merchandise to receive distribution instructions. In order to keep goods moving, the DC working, and planners focused on plans, an auto allocation process is a must.

That being said, all distributions can't be put on auto allocation. There are many instances where an allocation requires user intervention: perhaps sales are beating expectations and inventory is limited, or perhaps the opposite is occurring and allocations need to slow down. Either way, it is not easy to always identify which items should be auto-allocated and which ones require special care. For this reason, having a strong analytics solution with an exception reporting process helps categorize products according to allocation needs. With a strong analytics solution, alerts can be set up to advise users of items with DC stock that are turning faster or slower than the chain to help prioritize those distributions. Users should be reviewing these exception reports regularly to ensure informed decisions about which items should be managed manually and which can continue running on auto allocation.

Inventory management is a critical component to running a profitable omnichannel business. Making every piece of inventory available to every store in every channel is critical to maximizing inventory productivity. The allocation process - traditionally considered complex and sometimes overwhelming - with the right technology can be turned into something that is automated, exception-based and predictable (even in unpredictable business conditions).

Once the allocation process is optimized, the right stores should be well in stock at each point in the lifecycle, and you give yourself the best chance to maximize the return on your inventory investment.

Want to find out how you can maximize every dollar you invest in inventory?