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Designing optimal customer order allocation by taking into account of inventory fluctuations can be quite complex....

In the recent times, many multi channel retailers are increasingly focusing on designing the systems that help them manage variable supply and demand situations.  Hard tying demands to incoming supplies will make system very rigid. Customer demand management in multi channel commerce requires a well thought out pro active response to handle such fluctuations.


Quite often, order promising based on on-hand and incoming supply appears simple. Order promising and allocation can be based on the simple sequence in which order management receives order unless there is some priority orders. However, designing system that can respond efficiently considering following scenarios can be quite challenging –

  • Promise date at the time of order taking is based on the supply picture during that time. Post order confirmation, order management should check opportunities to better the customer promise date. i.e. assuming inventory updates are coming to order management “near real” time, there is every possibility that supply picture may have a positive (or negative) impact on the customer promise date. Order management should optimize the allocation based on the latest inventory picture
  • Demand variations can positively impact existing customer order promise date. i.e. If there are cancellations, existing orders which are already allocated should have higher priority for bettering the promise dates and not the new demands which entered order management
  • Customer promise date may be based on hand inventory during order entry. However at the time of allocation, the on hand inventory may no longer be available due to inventory adjustment (ex: bad inventory, QC check etc) updates from WMS. In this case order allocation should be considered based on the earliest possible incoming supply. In other words, demand realignment should happen based on the latest inventory update.
  • Incoming supply date changes, inventory quantity changes and/or supply cancellations should re-align the promise dates of the customer order. Inefficient demand management hard tie incoming supplies which results in sub optimal supply usage. Dynamic re-alignment of demands to the changed scenario in incoming supplies is very important.
  • Incoming supply status (can be described as supply quality) will have implications on meeting the customer demand. For example, incoming supplies may have different dates of receipts. However the highest quality supply should be considered for order allocation instead of simply going with the supply arrival dates. For example – PO shipped status is of highest quality in comparison with PO placed irrespective of the date of receipt. This situation may be due to updated PO arrival date not received from the supplier (ideally PO Shipped date < PO Placed date) or certain supplier always misses ETA!
  • Order which have been back ordered should get the priority when an incoming supply is received. Inefficient order allocations tend to hard tie the on hand or incoming supplies (a specific purchase order).
  • For all the situations described above, there is a potential change in the promise date. This may require customer communication. However, it should be noted that highly responsive allocation management may trigger several date change before the order is finally released for shipping. Care should be taken to determine a minimum threshold date change range to avoid unnecessary communications due to minor date changes. In case of positive changes to the promise date it may not be necessary to communicate at all. Customer will be happy in any case!

Dynamic allocation of demands to the most suitable supplies is very important in case of customer order allocations. It is necessary to make sure that the customer orders which have been received earlier always get the inventory availability in the same precedence. Also if an unplanned supply got received or gets cancelled, the existing orders get realigned to the available supplies to ensure most optimum usage of supplies and ensure maximum customer satisfaction. Some of the examples mentioned above are not exhaustive, however it should be noted that highly responsive customer order allocation design can become quite complex.


That was an exhaustive list Vinayak.

Want to provide 2 cents on a more specific scenario:

Considering a very common scenario of future supplies getting received earlier than the ETA (Expected Time of Arrival), the demands that were assigned / allocated to this future supply should now get realigned and get allocated to the on hand supply that has been received prior to the ETA.

Not realigning these kinds of supplies will lead to customer disappointments.

Thanks Madhavan for the comments. This scenario kind of ties to the 5th bullet point. It is very important that demand gets realigned when the actual date of arrival is less then ETA. As you rightly pointed out, if the demands are hard tied then customer orders will wait on that specific PO to arrive. Instead, if another PO received earlier (which may have the farthest ETA), demands should get realigned to maximize customer satisfaction.

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