Product Allocation Planning - Sharing the supply pie and managing order commits
The function of product allocation planning is that of a bridge between the planning and order fulfillment side processes. In the context of multiple sales channels, this function primarily ensures the right amount of supply is being allocated to the right channel partners at the right time
A case for allocation planning
Typically operations planning teams require a robust, real-time link to the order management ATP function. An allocation-planning tool provides this, with the division of finished good supply quantities as input, to manage commits on customer orders in the order to book cycle. In addition, they also want the ATP and allocation functions to work in tandem so that consumption rates from the various sales channels could be monitored leading to re-adjustment of the allocation strategy
To illustrate the point let me give a simple example of a company selling products via reseller channel:
Lets assume that the supply is available in the supply hub at the start of the week, and a small customer places a relatively big order on the same day. Without an allocation plan, the ATP function might commit a large amount of supply to this customer, and sales orders from other customers will be impacted. In a scenario where supply is constrained in relation to the overall demand to begin with, this could lead to impact on fulfillment for regular or premium customers.
The allocation planning function comes into play here, ensuring the amount of product allocation available to the customers is derived based on their demand forecast, current on-hand inventory and product/customer strategy. Thus if the ATP check includes material availability along with product allocation for the customer in the week in question, it only promises the customer's order to the limit of the product allocation planned for that customer.
By monitoring the performance of sales channels (store/reseller/online etc.) along with the incoming supply projections, within a given time period, the supply allocation strategy can be shifted to best suit the organization's mid term strategy.
The benefits can be further enhanced by consumption monitoring and real time re-adjustment of strategy. The ops planners can keep a check on customer consumption levels (in terms of bookings) and react to deviations against forecasts.
In this example, if a relatively large customer had not placed orders against its demand forecast in the week, the product allocations could be adjusted to accommodate larger share for other customers that are doing better than their demand forecasts.
What constitutes an allocation plan
Various factors decide the planning cycle and horizon of the allocation plan. There can be different needs e.g. in a retail context, store replenishment operations would plan the allocation on a daily basis but the horizon could be limited to 1 or 2 weeks.
In my engagement, one important focus for the implementation was on product strategy guidance (NPI or EOL) between the central and regional planning teams. This required an allocation plan horizon stretching across multiple quarters, to drive direction for quarter end inventory targets. The plan would be reviewed periodically based on updated supply forecasts i.e. shipments, in transits from the manufacturing centers and receipts at the regional hub.
Another key characteristic of the allocation plan is that it can be used to drive supply allocations across a mix of dimensions, for e.g. across sales channels (product-channel), across geographies (product-channel-region), or within a sales channel (product-customer-location, product-store)
While there are many more factors that go into building an allocation plan, the above are basic building blocks to start with
I will continue to post more on the allocation planning process and share my experiences. Please let me know your thoughts...