Dynamic inventory allocation: the key to optimal retail management

With an average out-of-stock rate nearing 8%—and even higher during promotions—store inventory management has become critically important. Stockouts and overstocks are costly and disorganized inventory management can significantly impact sales. Given the surge in omnichannel customer journeys, maintaining a high level of product availability across all channels is vital. Often, products are already within the network but are inefficiently distributed, incurring needless expenses. Learn how dynamic inventory allocation can enhance profitability and meet customer expectations effectively.

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Why dynamic allocation has become essential in retail

The diversity of touchpoints, both online and physical, complicates inventory management. Each point of contact requires timely and accurate supply without overburdening warehouses or tying up capital. This complex orchestration often becomes unmanageable using traditional, static methods or imprecise forecasts.

Frequent stockouts can frustrate customers and prompt them to turn to competitors, resulting in immediate sales losses. On the other hand, excess inventory poorly distributed leads to higher storage costs and the increased likelihood of markdowns.

Dynamic inventory allocation tackles these challenges by:

• Adjusting product distribution in real-time based on actual demand and business priorities;
• Enhancing product availability while optimizing resources to enhance profitability and the omnichannel customer experience.

What is dynamic inventory allocation?

Dynamic inventory allocation is a supply chain strategy that continuously adapts product inventory levels to fluctuating demand and operational challenges.

Unlike static methods that use pre-established plans, dynamic allocation leverages real-time data to place inventory where it’s needed most. A unified inventory approach centralizes data from stores, warehouses, and suppliers, providing complete visibility and informing allocation decisions based on real-time availability.

Dynamic inventory allocation operates on configurable rules to prioritize various criteria including:

• Priority channel
• Expected delivery time
• Defined safety stock levels for each product
• Order margins

Each allocation rule can focus on key elements like priority channel, delivery times, or margins. These guidelines can also establish thresholds that trigger automatic replenishment.

Backend algorithms continuously analyze sales, forecasts, and supply chain capacities to manage this approach. These tools automate decision-making for optimal inventory allocation, minimizing manual interventions.

Five concrete use cases for retailers:

Intelligent click and collect

Rather than defaulting to preparing orders in a central warehouse, dynamic allocation identifies the most suitable store—one with inventory, close to the customer, and able to prepare quickly. This omnichannel click and collect model reduces collection times and transport costs.

Optimized ship from store

When an online order is shipped from a store, the algorithm decides between several locations, considering available stock and proximity to the customer. This ensures a high service rate and minimizes unsold items.

Automatic inter-store reallocation

When a store experiences high demand for a product and another has surplus stock, reallocation happens proactively to prevent stockouts. This facilitates smoother inventory distribution among stores according to local demand.

Product launch campaigns

To ensure a successful launch, inventory is allocated to zones or channels most likely to generate conversions. Continuous adjustments prevent excesses elsewhere while responding to customer enthusiasm.

Multi-channel clearance and markdown arbitration

During promotions, inventory can be redirected to the most profitable channels, facilitating quick sales and maximizing margins.

What capabilities should you expect from your management solution ?

Effective solutions should offer a comprehensive view of the supply chain, integrating real-time inventory levels with forecast data. This broad visibility aids in anticipating needs, preventing stockouts.

It must seamlessly connect with existing systems:

• OMS for order orchestration
• POS for in-store sales
• WMS for warehouse management
• e-commerce sites for online sales
• Predictive demand analysis tools

Such interoperability ensures efficient data flow across online and offline channels, treating each as interconnected parts of a cohesive network.

Lastly, a real-time inventory allocation solution should include:

• A standard simulation interface for testing various scenarios
• Customizable rules to adjust allocation based on the retailer’s priorities
• Real-time tracking of availability rates to evaluate impacts on customer satisfaction and operational performance

The solution must promptly identify and address any supply issues to ensure product availability remains unaffected.

Orisha Commerce’s software intelligently optimizes inventory allocation, adjusting product availability according to demand and optimizing shipments. Our platform centralizes inventory data from all your sales channels—both online and in-store—offering a real-time overview and aiding decision-making.

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What business benefits can you expect ?

Dynamic inventory allocation delivers measurable improvements across various performance metrics, primarily by significantly reducing stockouts. Real-time visibility into inventory allows retailers to better anticipate needs, adjust replenishment, and balance supply with demand. Reducing stockouts not only recaptures lost sales but also improves customer satisfaction as products are more readily available.

Enhanced product availability across all channels leads to higher omnichannel service rates and a consistent customer experience. Improved inventory circulation results in quicker turnover and reduces capital immobilization.

Process optimization reduces overstocks, which are costly to clear, and improves overall margins by minimizing markdowns and maximizing full-price sales. Dynamic allocation fosters a more economical model by curbing expenses and increasing sales. Additionally, by adjusting replenishment based on real demand, it reduces unnecessary costs and boosts product availability.

Looking to advance your store inventory management further? Want to take your store inventory management to the next level? Explore our solution.

Although a unified inventory vision forms the foundation for data centralization, dynamic inventory allocation goes beyond. Optimization algorithms position the supply chain as the core of omnichannel performance. Retailers benefit from this approach through optimal product availability and enhanced economic profitability.