The focus was on setting parameters like product groups, customer groups, planning horizon and frequency.The next important question is how to effectively distribute supply amongst multiple demand channels during periods of constrained supply.
Supply Distribution Strategy
Allocation priority in essence is the first level of supply distribution. Depending on the level of allocation plan being derived, these priorities can be applied at various levels, for e.g.: among various sales channels or geographies, or even at a customer level. The tool should start distributing supply to allocation groups in the order of priorities defined, so that the higher priority demand sets get satisfied first.
In the process of distributing supply based on priorities, cases when supply is constrained for the demand of an entire allocation group is addressed through "supply distribution rules". These rules define how to resolve supply constraints within an allocation group when the supply is limited.
Supply distribution rules can be designed to meet allocation needs in different situations. Note that these rules are not only meant for granular levels like customer/store or SKUs, these can also be applied to higher level allocation groups like a set of customers/stores, geographies or products. I have listed a few examples below.
- Simple fair share allocation based on demand: Candidates get the share of supply in proportion to their demand in given period. This method can be applied for those customer or store groups with lower cumulative demand, or sporadic demand patterns
- Share based on target periods of supply: Candidates are allocated supply to fulfill the same percentage of their individual target periods of supply. This is a commonly used method, and gives fair results based on the candidates' demand patterns. Important factor to be considered is the proper maintenance of the target levels for each candidate, depending on their demand history and variability
- Share of supply based on backlog: Supply is distributed in proportion of backlog for each candidate. This method is usually applied in situations of extreme supply constraints
- Fixed supply allocation: In certain cases it may be required to fix the supply allocation of a candidate based on prior commits or agreement. If such a candidate is part of an allocation group, the tool should treat it as a first priority before applying the supply distribution rule on the remaining candidates
It is a good feature to have time phased supply distribution rules. For example, if the supply volume is projected to be low in the start of a quarter but expected to improve over a month, it is prudent to use "distribution based on backlog" rule for the first four weeks and later switch to "distribution based on periods of supply" rule.With the allocation parameters and supply distribution strategies setup within the tool, fluctuations across demands, supply and customer priorities make it necessary to perform continuous evaluation and review of the generated planned allocations. This leads to further fine-tuning of the allocation parameters. In order to perform these functions, the end user should be able to visit simulation scenarios by tweaking allocation parameters like periods of supply, supply distribution rules, allocation group definitions etc.