Product Allocation- Your Complete Guide
Product Allocation Strategies and Best Practices for eCommerce Businesses
Product availability is critical for both online businesses and their customers. When it comes to allocation strategies, most eCommerce businesses choose equal allocation, trend allocation, and seasonal allocation to meet demand efficiently.
Types of Product Allocation
Equal Allocation
With equal allocation, also known as universal allocation, you distribute your entire product catalog evenly across your fulfillment network, providing each distribution center with the same amount of every in-stock SKU. If you also have brick-and-mortar stores, you should maintain the same inventory levels for online sales at each physical retail location.
Trend Allocation
Trend allocation allocates inventory based on which items are trending in different regions. For example, fitness apparel often originates in California. If you sell fitness gear, you may want to distribute inventory among fulfillment centers while keeping most stock near the West Coast.
Seasonal Allocation
Like trend allocation, seasonal allocation stores inventory in locations based on weather patterns. For instance, if you sell sweaters, you might stockpile merchandise in the Midwest or Northeast. In contrast, if you offer swimsuits, you may warehouse most inventory in Florida.
Benefits of Product Allocation Planning
Effective product allocation planning can benefit eCommerce businesses in various ways. Here are the top advantages:
Improved Inventory Management
Based on market demand, a smart product allocation strategy helps determine where to locate inventory within your supply chain. You can optimize inventory levels without overstocking multiple locations. This prevents costly stockouts and backorders that damage revenue and credibility.
Reduced Inventory Waste
Inventory can become unsellable "dead stock" if there's low demand near storage locations. Proper allocation ensures you have adequate stock in the right places at the right times.
Enhanced Understanding of Customer Behavior
Analyzing order data provides insights into customer purchasing patterns - when they typically buy, which products are most popular, average order values, return rates, and so on. These insights inform smarter decisions about inventory quantities and locations.
Lower Shipping Costs and Transit Times
When inventory sits far from its destination, shipping rates rise from crossing zones, and delivery takes longer - frustrating buyers. Storing inventory close to customers reduces these pain points.
Improved Customer Experience
Stockouts, backorders, and shipping delays hurt the customer journey. However, proper allocation provides a superior experience that makes customers more likely to repurchase and recommend your business.
Optimized Omnichannel Distribution
If you sell both online and in physical stores, analyze sales data to understand regional demand. You can minimize shipping costs and transit times by housing inventory near the customers who need it.
Product Allocation Best Practices
Here are some tips for properly allocating inventory across your omnichannel operations:
Leverage Inventory Management Software
Robust tools track inventory across new sales channels, warehouses, and markets while minimizing human error. Many integrate with major eCommerce platforms and connect to your tech stack for centralized visibility.
Utilize Demand Forecasting
While demand fluctuates, data-driven forecasts empower smart allocation decisions across distribution centers and channels. Scenario planning also informs hiring, marketing campaigns, storage requirements, and more.
Maintain Adequate Inventory Levels
Carefully managing stock volumes in warehouses balances storage costs with sufficient inventory to meet customer demand. This is crucial for smooth operations.
The Bottom Line
Strategic product allocation enables inventory control and omnichannel growth for eCommerce brands. It also provides data-driven insights to satisfy demand, prevent stockouts, reduce costs, and improve customer loyalty.
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FAQs
What is product allocation in eCommerce?
Product allocation refers to how eCommerce businesses distribute inventory across their omnichannel fulfillment networks to meet customer demand efficiently. Key strategies include equal, trend, and seasonal allocation.
What are the benefits of a product allocation strategy?
Benefits include better inventory control, reduced waste, lower shipping costs, improved customer experience, optimized distribution across channels, and data-driven operations.
What should you consider when allocating products?
Consider market demand forecasts, purchasing trends, seasonal patterns, minimizing transit times/costs, preventing stockouts, storage costs, and maintaining enough safety stock across your distribution centers.
How can you optimize inventory allocation?
Use robust inventory management software, demand forecasting tools, and data analytics to gain visibility and allocate products strategically across your fulfillment network over time.
What are some best practices for inventory allocation?
Best practices include leveraging allocation technology, demand forecasting, distributing inventory closest to key markets, maintaining sufficient stock levels, monitoring turns, and dynamically adjusting based on the latest trends.
How does proper allocation impact eCommerce customers?
Proper allocation prevents stockouts and shipping delays, provides faster deliveries, delivers personalized product recommendations, and enables superior customer experiences critical for loyalty and repeat purchases.
What happens with poor allocation strategies?
Poor allocation causes inefficient operations, higher costs, stockouts, shipping delays, and poor customer experiences that damage the brand. It also restricts omnichannel growth potential.
