Proper inventory allocation is crucial to the success of any fashion and apparel business. The reason is that when you get your inventory allocation strategy right, you will find it easier to utilize your warehouse space properly, increase inventory availability, optimize inventory levels, forecast inventory demand better, and improve your supply chain efficiency.
In addition, proper inventory allocation can help reduce storage costs, minimize the risk of storing excess inventory and reduce shipping costs. Plus, it can be your ticket to winning more customers and amassing more sales. More on the benefits of inventory allocation shortly.
While there are several strategies you can use to allocate inventory within your warehouse and distribution centers, not all strategies are worth trying, especially for fashion and apparel businesses.
In this post, we will delve a bit deeper into inventory allocation to help you understand what it is really all about. Plus, we will discuss the benefits and methods.
Inventory allocation is a critical aspect of supply chain management that involves determining how much inventory should be distributed across different storage facilities, sales channels, etc. to optimize warehouse space availability and ensure customers’ demands are always met.
Inventory allocation is a form of inventory control which starts with forecasting demand for different products based on historical data, market trends, and customer behavior. This demand forecast is used to determine how much inventory is needed at each location or channel to meet customer demand while minimizing the risk of stockouts or overstocking.
The overarching goal of inventory allocation is to curb poor inventory management, improve customer satisfaction, and improve your bottom line.
It takes a lot of time, resources, and effort to improve inventory allocation. So, why bother? Well, the reason is simple: proper inventory allocation offers a lot of benefits. Here are a few of them.
When you get your inventory management right, allocating the right product, at the right time, in the right quantity, and to the right channel would become easier. This leads to improved customer satisfaction, as customers are more likely to find the products they need when they need them. This, in turn, can lead to increased loyalty, repeat business, and positive word-of-mouth marketing.
Stockouts occur when inventory levels fall too low and customers are unable to make a purchase. This often leads to lost sales, lower customer satisfaction, and can damage your brand reputation. Effective inventory allocation helps to reduce the risk of stockouts by ensuring that inventory levels are optimized based on demand forecasts, sales history, and other factors. This can help companies avoid lost sales, maintain customer satisfaction, and protect their brand reputation.
Inventory holding costs can be a significant expense for companies, including costs related to storage, handling, and obsolescence. Effective store inventory allocation helps to optimize inventory levels and reduce the amount of inventory held in stock. This can lead to lower inventory holding costs, which can free up capital you can channel to other aspects of your business.
Inventory allocation helps to improve supply chain efficiency by ensuring that inventory is available where and when it is needed. This, in turn, leads to reduced transportation costs, improved delivery times, and lower risk of stockouts. Optimizing inventory allocation for your apparel brand enables you to streamline your supply chain operations and improve overall efficiency.
Effective inventory allocation can lead to increased profitability by improving customer satisfaction, reducing stockouts, lowering inventory holding costs, improving supply chain efficiency, and optimizing pricing and promotions. By allocating inventory effectively and efficiently, companies can maximize sales and profits, which can help them achieve long-term success in their respective industries.
When it comes to distributing your inventory, figuring out the right inventory allocation rule to use can be a challenge.
For example, if your business is such that demand is unstable, figuring out the right quantity of products to send off to your warehouse – or to a third-party warehouse if you don’t have any – can be a challenge. You might also find it difficult to figure out which sales channel to put the most effort into.
While there are no hard-and-fast rules for determining which allocation rule to use for your business, there are important variables to keep in mind while at it. They are as follows:
There are quite a number of inventory allocation methods you can try for your fashion/apparel business. You can implement them manually or automatically using inventory management software.
That said, here are some inventory allocation strategies you can try:
This allocation strategy involves distributing inventory across your sales channels and storage facilities uniformly, regardless of demand, market trend, and location.
For example, if you have 3 warehouses spread across 3 different states and you send 100 units of, say, dresses to each, that’s Uniform allocation at play.
This is by far the easiest and most cost-effective method for allocating inventory. However, it is largely inefficient. You might end up stockpiling your warehouses with inventories that will never get sold, leading to serious losses.
Moreover, allocating inventory uniformly can lead to perennial stockout and overstocking issues.
Demand-based allocation is a strategy that involves distributing your inventory based on, well, demand. In this arrangement, you allocate products to locations and channels with high demand, and vice versa.
For example, if you notice that most of your sales come from, say, Shopify, it only makes sense to allocate more products to that channel and then the rest to other channels.
Demand-based allocation is hardly ever fixed – you need to keep changing your allocation formula as market demand and trend changes.
Speculative allocation is loosely tied to Demand-based allocation, in that you distribute inventory based on demand anticipation.
For example, as an apparel retailer, you can stock up your warehouse with beach wears in anticipation of summer when the demand for light clothing surges.
Keep in mind that speculative allocation can only work well when you draw insights from historical data. Guesswork and assumptions will only lead to avoidable headaches.
Sometimes, allocating products based on demand – actual or speculative – can lead to inventory overstocking. To curtail this, businesses often resort to Just-in-time (JIT) allocation.
JIT is the practice of keeping your inventory levels as low as possible and only ordering products from suppliers – or commencing production if you produce – when orders come in.
The major upside to using the JIT approach for inventory allocation is that it helps prevent overstocking.
However, you shouldn’t exclusively depend on it else you might disrupt your supply chain.
Inventory allocation can be done manually or with an automated inventory management software. The former is the ideal choice if you run a small e-commerce business with little to moderate inventory levels.
But if you have a relatively high inventory level with multiple sales channels, you are better off using an apparel ERP system like Uphance for your offline or online store.
With Uphance, you can manage and allocate your inventory across your sales channels seamlessly. And if you use third-party warehouse and logistics providers, Uphance lets you push inventory to your preferred platform with a few clicks of the button.
Sign up for a demo to see Uphance in action.