Product Allocation Planning - Managing allocation parameters
Continuing from my previous post, what questions come to mind when one thinks of a finished good product allocation-planning tool?
Well, one of the first question is how does the tool ensure right amount of supply is being allocated to the various demand channels, and how does it share supply when faced with a supply constraint?
This presents us with the two important aspects of product allocation planning, that is, Planning Strategy and Managing Supply Constraints. I'll focus on the first aspect in this post.
Setting up the allocation planning strategy
The supply gets distributed based on the setup of allocation parameters. This in turn depends on the mid term sales strategy and the product life cycle stage. I have tried to laid down a sequence of the basic and important strategies that need to be arrived at:
One of the first steps is deciding on what level of detail you want the allocation to be done. The allocation plan can range from a global view of demand and supply to a refined, customer specific level that considers country or sales area specific supply and demands. It is a good practice to start from a global allocation plan that is based on global product and sales strategy, and gives an allocation across geographies and sales channels. This is further refined to geography or channel specific allocation plan versions that are derived from the global allocation plan. This can be further broken down to customer/customer group specific plans that are eventually communicated to the ATP module of the OM system. In order to implement this, the tool must be able to derive a supply projection at various levels of aggregation
The next important step to start allocation planning is deriving the right set of groupings you want to allocate for. For e.g.: It is imperative to have an individual allocation plan for your top 20% customers in a particular sales area, but the rest 80% can be clubbed in a sets of tier 1, 2 and 3 customers. Similarly, an individual allocation plan could be created for geographies like USA, versus a combined allocation plan for a set of geographies like the South Americas.
Following these two decisions, arriving at the right amount of supply for a sales channel or customer in a particular week is the most important strategy to drive the allocation plan. This is usually based on targets days/weeks of inventory that are derived keeping in view the sales plans, customer importance and delivery lead times. The allocation quantity for a given week for a customer or channel would be the average sales spreading across the target inventory weeks, and netting out whatever inventory the customer or channel already holds.
Setting allocation priorities is the next key parameter. Depending on the level of allocation plan being derived, these priorities are applied among various levels, for e.g.: various sales channels or geographies, or even at the customer level. The tool should start distributing supply to allocation sets in the order of priorities defined, so that the higher priority allocation sets get satisfied first.
the attached diagram I have presented a view on setting up allocation plan parameters
based on product sales geographies, revenues and number of customers
While the discussed parameters are presented as sequential, in situations they can be interdependent when defining an allocation strategy, and need to be refined on a periodic basis to keep up with changing business scenarios. In my coming posts I will continue more on allocation parameters and focus on strategies to manage supply constraints... Looking forward to your thoughts