Optimizing Inventory Allocation with Microsoft Dynamics 365 Supply Chain Management

Businesses operating across diverse channels and regions encounter increasingly intricate networks for order fulfillment. In times of supply shortages, effectively managing limited stock across key channels, customer groups, regions, and promotions becomes essential. The Inventory Visibility service in Microsoft Dynamics 365 Supply Chain Management offers robust inventory allocation capabilities to address these challenges.

Understanding Inventory Allocation

Inventory allocation enables the virtual distribution of available stock during the sales planning process, prior to actual sales. The primary goals of allocation include:

• Inventory Protection: Safeguarding allocated inventory from other allocations, reservations, or sales demands.
• Oversell Control: Limiting allocated quantities to prevent overconsumption during actual sales transactions.

Integrating Inventory Allocation into Sales Planning

Key Terms:

• Allocation Group: The entity that owns the allocation, such as a sales channel or customer group.
• Allocation Group Value: The specific value within an allocation group (e.g., “store” for a sales channel or “VIP” for a customer group).
• Allocation Hierarchy: A structured combination of allocation groups that dictates inventory distribution to each group.
• Virtual Common Pool: The quantity of inventory available for allocation.

Case Study: Allocation in Action

Scenario

Company A sells laptops online and in-store across multiple countries. Supply chain disruptions have significantly impacted the manufacturing capacity of a popular model. The company must balance fulfillment capabilities between its online and in-store channels in the United States and the United Kingdom.

Strategy and Execution

1. Determine Allocation Groups and Hierarchies:
   • Company A establishes allocation groups and hierarchies based on its distribution strategy. This virtual allocation is based on current stock levels and does not involve moving physical inventory.
   • Initial segmentation and planning of allocation quantities are performed within the planning system, with the option to manually adjust based on historical data.
2. Execute Allocation:
   • Company A uses the Inventory Visibility service to secure each group’s allotted quantity. Reallocation adjustments are possible if needed.
   • Allocations: USA (5,000 laptops), UK (3,000 laptops), with 2,000 laptops reserved in the virtual common pool. Of the USA allocation, 3,000 are designated for the online sales channel.
3. Fulfill Regional and Channel Demands:
   • Orders from allocation groups utilize their designated stock through either physical or soft consumption.
   • Example: A customer purchases a laptop from Company A’s USA website. The Inventory Visibility service confirms sufficient stock in the USA online sales channel allocation, allowing the order to proceed. Consumption may involve soft reservation or direct physical stock deduction.
4. Order Processing and Shipping:
   • Company A processes and ships the order as per standard procedures.

Benefits of Inventory Allocation

Integrating inventory allocation into your order fulfillment process enhances control and visibility over your distribution network, allowing for optimal use of on-hand stock. Allocation extends from planning to execution, ensuring protected stock and enabling businesses to fulfill commitments to sales channels, customer groups, and partners.

Next Steps

If you are interested in learning more about inventory allocation in Microsoft Dynamics 365 for Supply Chain Management, contact us here to find out how we can help you grow your business. You can also email us at info@loganconsulting.com or call (312) 345-8817.