Seven best practices for data-driven order allocation

1. Prioritize orders that will mitigate the most lost sales

You lose sales any time your product isn’t on the shelf when a shopper wants to buy it, but not every unfilled order means empty shelves. Quantifying the cost in terms of downstream lost sales helps you make better decisions and more compelling recommendations to retailers. 

Calculate Lost Sales $ at the SKU-location level, using historical POS or a forecast to estimate unconstrained demand. This simulated metric projects what demand, and thus sales, would be if you were in-stock during a given period.

While there are other factors like transportation costs, OTIF fines and customer relationships to consider, begin by prioritizing a retailer’s orders that will prevent the most Lost Sales $. Best-in-class companies then take it a step further by prioritizing orders across all retailers.  

3. Proactively identify and communicate any bottlenecks at retailer or distributor DCs

Even when you’re chasing demand, inventory can get stuck in DCs or overstocked stores because of replenishment errors, sometimes even leading to spoils and markdowns. With the right visibility, you can free up this inventory earlier to help make allocation situations less dire or prevent them altogether. 

Track weeks-of-supply across all your retailers and distributors so you can proactively identify unproductive inventory anywhere in your network and take corrective action. Start by working with your partners to adjust future orders where necessary and deploy stagnant inventory to shelves where it is more likely to sell through.

4. Use projected weeks-of-supply simulations to get ahead of future inventory risks

This forward-looking metric is key to predicting where outages may occur, empowering you to take proactive steps to mitigate the most significant risks. It can also help you communicate your allocation decisions to your partners, who may be willing to adjust their orders if you can point to excess weeks-of-supply in their pipeline. 

To simulate projected weeks-of-supply at a given location, you’ll need some measure of expected inflows and outflows, as well as units on hand. How you measure inflow and outflow will depend on what data is available. You could use scheduled, forecasted or planned receipts for inflow. For outflow, you can use planned, forecasted or requested shipments or simply use forecasted sales. Bring it all together to project the number of days until on-hand goes to zero.

5. Continually monitor your retailers’ forecasts for accuracy and changes

Staying on top of your retailers’ forecasts and any changes they make will maximize the time you have to react to a shift in orders. It’s also a handy data point when negotiating an unexpected order that comes in.

Furthermore, tracking your retailers’ forecast accuracy over time helps you highlight sources of error to your buyers. Then you can work together to improve performance and avoid allocation situations caused by last-minute changes.

6. Clearly communicate why orders are going to be short and how you’re fixing it

When you make data-driven order allocation decisions, you’re not only driving top and bottom line value, you’re building trust with your buyer. But that doesn’t mean just showing a bunch of numbers to prove you’re data-driven. Craft a narrative that prioritizes what’s most important to your buyer and diagnoses the underlying issues so you can also share how you’re resolving them.

Data-driven storytelling is rapidly becoming one of the most valuable skills for consumer goods sales and supply chain professionals to stand out to retailers.

7. Fight against the silos that separate sales, planning and supply chain teams

Chasing demand is a team sport. You must maintain alignment between the salespeople managing partnerships, the operators executing your supply chain and the planners trying to make sure you can keep up with demand in the medium and short term. Set up a single source of truth and common platform to improve communication, so you won’t be stuck cutting orders in the future.