8 tips for better initial allocations

22nd June 2018

Initial allocations (or first injections) should be enough to cover forecast sales before replenishment can kick in, plus a safety stock. And for many retailers this can be 40 to 60% of anticipated sales or 40 to 60% of the buy.

So, what should you consider when trying to get the right buy quantity for better initial allocations?

  1. Some people just use their judgement or take a guess! Martec’s clients who pattern initial allocations after a similar past product achieve better results.
  2. If you do use a similar product base allocation calculations on demand for the product, not sales.
  3. But how do you select the right product to pattern the new one after? Best practice is to use an approach based on attribute analysis.

Examples of attributes are fabric, garment silhouette, skirt length, fit, price point. In furniture it might be solid wood, veneer, etc. The buyer will normally define the attributes for an item.

  1. If you assign weights as to how important each attribute is in selecting past items this will work best. Then you can use the weights to calculate a balanced scorecard “score” for all past products.
  2. It depends on your business, but it usually makes sense to look at the last 3 or so seasons and shortlist a handful of products with the highest scores for the buyer or merchandiser to review and decide which is the best choice to pattern after.
  3. This scorecard approach is useful because it overcomes issues associated with selective or partial memory and overcomes the loss of corporate knowledge with staff attrition. And it is easy to be biased without meaning to if you don’t apply some science. The net result is better buying quantities (based on demand not sales) and fewer stock outs.
  4. If you select a better product to pattern after you can then use the past store by store estimated demand (or sales if that’s all you can do) to help make better allocations by store or indeed by channel.
  5. If you have a PLM system you can tie assigning attributes into the PLM processes. Otherwise get buyers to do it every time they buy a new product.
  6. If you are serious, retrospectively attribute all last year’s products.

Have you tried this approach? What works best for you? Please post a comment or question.

And if you would like to know more about Allocation and Replenishment best practice Martec has developed a 3-hour e-learning course on the subject.

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