Inventory allocation

  • Oct 19, 2022
  • 5 min read
Cover: Inventory allocation

As a company grows, the scope of tasks associated with inventory allocation broadens and becomes less and less intuitive. Inventory allocation impacts the speed of order fulfillment and the cost of delivering orders. However, there are more paybacks to paying attention to this critical component of any supply chain management. Inventory management is crucial for long-term success, assisting organizations in reducing expenses, enhancing cash flow, and increasing profitability.

Inventory allocation is the process of managing stock levels and the flow of commodities. While inventory control and inventory management may appear to be synonymous, they are not. Inventory control governs what is currently in the warehouse. Inventory management is broader and regulates everything from what is in the warehouse to how a company gets the merchandise there and where the item ends up.

This topic is particularly relevant to the online shopping business that provides big retailers with the tools for expansion. Rapid growth in sales often comes with additional difficulties in inventory allocation. This article will give you an overview of the known techniques in this sphere and offer other tips on developing and implementing the perfect inventory allocation system. 

An outline of the inventory management process 

First, examine the inventory management process to understand your needs better. This is critical for eliminating errors and selecting the best inventory management software for your company.

  1. After the product arrives at the warehouse, inspecting, sorting, and storing the products. The system you prefer for this task is not essential. 
  2. Keep track of inventory levels. This can be done using physical inventory counts, perpetual inventory software, or cycle counts, and it helps to reduce the possibility of inaccuracy.
  3. Customers place orders in person or online.
  4. Authorize the orders. This is the stage at which you transmit the order to your supplier, which may be automated with the help of your POS system.
  5. Pick the needed product from the stock using their SKU number. 
  6. Update inventory levels accordingly. You may use a perpetual inventory system to automatically update inventory levels and communicate them with the appropriate stakeholders.
  7. Lowered inventory levels will eventually trigger the reordering point and initiate replenishing

Common approaches 

There are several widespread approaches to inventory management you can choose. Periodic inventory management is a method of inventory valuation for financial reporting purposes that involves doing a physical count of the inventory at standard periods. This accounting technique begins with the list, adds new inventory purchases over the period, and subtracts ending inventory to calculate the cost of goods sold. 

Barcode inventory management systems are used by businesses to assign a number to each product they sell. They can correlate the number with various data pieces, such as the supplier, product dimensions, weight, and even changeable data, such as how many are in stock.

RFID, also known as radio frequency identification, is a technology that wirelessly broadcasts a product’s identity in the form of a unique serial number to monitor products and offer extensive product information. RFID-enabled warehouse management systems may enhance productivity, boost inventory visibility, and assure quick self-recording of receiving and delivery.

Tips for optimization of every step of the inventory management process


Sorting all products into three general groups on a fundamental principle can significantly influence overall inventory costs. Group similar inventory in the same sections as much as possible; unique products should be stored in a separate area. For most businesses, the best choice is to divide the categories by the revenue the product brings or the number of sales. Category A would cover the most valued products; category B is those that lie between the highest and least valuable; small transactions that are important for overall profit but don’t contribute much individually fall under Category C.

Determining which product to ship upon order

There are two approaches to determining the cost of the good: FIFO and LIFO or First-in First-out, and Last-in First-out. LIFO implies that fresh goods have an additional advantage so that they would have priority for the customer. The FIFO approach prioritizes older interests to maintain a general level of freshness high. 

Reorder strategies 

The Economic Order Quantity (EOQ) formula determines how much inventory a company should purchase depending on variables such as total cost of production, demand rate, and other factors. The algorithm calculates the most significant number of units to reduce purchasing, holding, and additional charges.

The Minimum Order Quantity (MOQ) is the least amount of inventory a retail organization will acquire to minimize the cost. Remember those inventory goods that cost often have a lower MOQ than inexpensive things that are less expensive and easier to stock.

Determining the value of EOQ and MOQ for your business can significantly help optimize the entire inventory allocation process. 

Larger companies may consider implementing the Just-in-Time model. It is a process in which businesses reorder goods on an as-needed basis rather than ordering too much and risking dead stock (inventory never sold or used by customers before being removed from sale status).

Inventory optimization

Inventory management involves overseeing and optimizing the storage, tracking, and organization of a company's goods or assets to ensure efficient.

The LEAFIO Inventory Optimization tool is designed to manage the order throughout the entire life cycle. As a result of LEAFIO's operation, you get an automated calculation of the quantity required for the order, automated generation of orders, automated dispatch of orders, automated editing of dispatched orders based on the supplier’s feedback and control of order execution. You also get a transparent and structured dealing with orders workflow, with its advantages for both the line manager and the head. The management becomes less resource-intensive and more efficient – managers are released from routine tasks. Accurate demand calculation increases product availability, reduces surplus inventories and improves turnover.

Other essential features for you to choose an automated inventory management system:

  • Multi-echelon replenishment (all levels of the supply chain are connected and balanced);
  • Inventory transfer;
  • Automated reorder;
  • Order periods in a store;
  • Integration possibilities;
  • Automatic procedures for supporting the assortment rotation.


Inventory management connects all aspects of the supply chain. Customers may be dissatisfied if insufficient stock is available when and where it is needed. On the other hand, a large inventory carries its own set of liabilities, including the cost of storing and insuring it, as well as the risk of spoilage, theft, and damage. Inventory control ensures that the most money is made from the least amount of stock while maintaining customer satisfaction. It allows businesses to examine their current situation regarding assets, account balances, and financial reports when done correctly.

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