By Ian Hobkirk
Managing Director of Commonwealth Supply Chain Advisors
The rise of “omni-channel” commerce places new demands on distribution centers, especially in the area of segregating or “protecting” inventory for certain channels or customers. (Note: for a discussion of the differences between “mutli-channel” commerce and “omni-channel” commerce, see our article, The Ten-Step Omni-Channel Challenge in Material Handling and Logistics’ September 2013 issue.
A common practice in distribution is to segregate inventory by channel with the intent of ensuring that no particular channel gets starved when a given SKU is in high demand. Unfortunately this approach can unnecessarily complicate inventory management and lead to gross inaccuracies in some instances. It can also result in heavy technology customization. There are several approaches which can be taken to accommodate the need for reserving inventory that allow for more standardized inventory transactions or “protecting” inventory for certain channels or customers.
1. “Force Minimum” Method
Some WMS systems have a standard “Reserve Minimum” functionality. Like the name implies, the “Reserve Minimum” functionality lets a company reserve a minimum quantity for each product that will not be allocated unless the order includes an indicator that says it can draw from the reserve pool. For instance, retail replenishment orders would never allocate against the reserved minimum and web orders would always allocate against the reserved minimum so the web/mobile orders would always have access to additional stock or vice versa. It would also be possible to override the allocation settings and let retail replenishment orders take the reserved quantity (in the case of a close-out order, for instance).
For retail suppliers involved in omni-channel commerce, another approach would be to include the quantity earmarked for each retailer in the “Reserved Minimum” to make sure that a large order from one retailer, for instance, doesn’t wipe out the inventory for all other retailers.
Example:
Based on the following inventory:
- Warehouse has 1000 units of TSHIRTA in stock
- Total Reserved Minimum is 700 units
- 500 units are reserved for e-commerce orders
- 100 units are reserved for JC Penney
- 100 units are reserved for Macy’s
If a wholesale order is placed for 400 units for Target, the system will only have 300 units available because 700 of the 1000 are reserved. If a web order is placed for 400 units, the system will allocate 400 units since it can allocate against the 700 reserved units.
Advantages
- This approach doesn’t require separate product numbers or separate bins to segregate inventory
- Everything is stored in the same bin under the same product number, so cycle counting will be straightforward
Disadvantages
- Some systems may not be able to specify the exact quantity reserved for each retailer– in the above example, the system only knows that 700 units are reserved.
If this seems a little cumbersome, it might be possible to do a customization to allow for the creation of a “reserved minimum matrix” where you can define the quantity to reserve for a given channel or consignee.
2. Inventory Class Designation
Some WMS systems handle this situation by keeping the inventory in different classes, i.e., class 01 – e-commerce, 02 – retail. The product would still exist as a single SKU in a single bin, and would be counted as such during cycle counting.
3. Bulk Orders
The distributor would enter a dummy bulk sales order for a particular channel (ex: e-commerce) which reserves large blocks of a SKU. The order management system, especially for web orders, would be configured to accept orders for items which appear to be unavailable, creating back-orders for those items. Then, a worker reviews the back-order report each day and releases stock that is reserved for the dummy bulk orders as needed to satisfy different orders. The SKU can still all be held in one bin and cycle counted together as one SKU.
4. Non-Allocable Bins
Another way to hold some material for a given channel is to physically place the material in a bin that is not available for forward picking and that requires operations to “force allocate” to that location.
What methods have you successfully used for inventory allocation?