The Art and Science of Allocation: Why More Retailers are Taking A Customer-Centric Approach to Inventory

Many of us began our careers when inventory planning was driven predominantly by the seasons and we had months at a time to ramp-up and sell-through merchandise for spring/summer and autumn/winter. What we wouldn’t give to have that much cushion in our selling cycles today!

Inventory cycles that once spanned months have now shrunk to weeks and shoppers have no qualms about spending their cash with retailers who offer the right products when and where they want them.

So with the immediacy of consumerism reaching a fever pitch and various retail segments requiring inventory turns at warp speed, how do retailers ensure that the right products are available in the right channels at the right time to avoid lost sales and excessive markdowns?

By attempting various strategies, retailers have ultimately learned that allocation is both an art and a science.

Retailers Attempt at a “Scattergun” Approach

Historically, retailers took a ‘scattergun’ approach that pushed products quickly into stores. When new product lines arrived in the distribution centre or warehouse, 60-70 percent of the merchandise was often sent directly to stores. For apparel, sizes and colours were distributed evenly, no matter where the stores were located and regardless of the buying patterns of local shoppers.

This unscientific approach to allocation was aimed at a single goal: moving merchandise very rapidly. While there are benefits to this approach, for example ensuring some merchandise is reaching the right consumer targets quickly, there are more significant downsides.

When merchandise fails to sell as hoped, high costs result because of the need for stock transfers or markdowns. Large quantities of misdirected merchandise also interfere with retailers’ ability to turn over inventory and reduce the display space available to newer, more saleable products.

Although some retailers still rely on the scattergun approach, many more retailers are heading in the direction of customer-centric allocation strategies relying on art (for example, skill gained by experience) and science (such as allocation software) to more precisely match supply and demand.

Matching supply with demand with greater precision – and better results

As most retailers are trying to get closer to their customers, be it through social media, big data or customer experiences, having the right inventory for their customers, at the right time, still remains one of the most effective and profitable ways for retailers to earn their customers’ business.

For that reason, they are leveraging allocation software to match product demand at the local store level to create a customer-centric inventory strategy. By using allocation technology to gather and analyse data on local demographics and shopper behaviour, retailers can adopt a more scientific approach to allocation that’s tailored to the characteristics of specific stores. They can then channel the flow of stock to meet the available selling space, without sacrificing speed. And they can make sure that stores where sales are highest get the merchandise they need, in the right blend of colours and sizes – without being overloaded or under stocked.

The benefits of intelligent, customer-driven allocation strategies include enabling retailers to actively boost sales by delivering greater product availability. And it’s also having a positive effect on their profit margins by drastically reducing markdowns, terminal stock levels and inventory carrying costs.

We all know that today’s retail landscape is a complex environment with competitors lurking down the street, on customers’ devices, and in emerging channels yet to be defined. And while we continue to embrace the latest technologies that offer insight into our customers’ preferences, it’s a good reminder to infuse art and science into current processes, such as allocation, to improve top and bottom lines, as well as customer satisfaction.

  2 Comments   Comment

  1. this is actually hold true. I have experienced this. Allocation is an art and science. Its an ART because u can not fully dependent on historical sales for the movement of stocks because of fast changing consumer taste and availability of merchandise online. Its a science because 60-70% times , historical data hold true and u get that kind of feedback this time around as well.

    to allocate in the best possible way is to allocate first on historical sales and then check the current sale and other parameters like similar looking merchandise performance, current market trend etc

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