4 Ways to Optimize Allocation of Constrained Supply 

Supply chain issues have put many companies into crisis mode. Avert crises and manage your supply chain more efficiently with optimized allocation of constrained supply.

It is challenging to deploy products quickly and efficiently when dealing with insufficient stock to support demand, or when a customer asks for different product compositions or assortments. While supply chain woes have existed for decades, the last few years of supply chain crises have tested the mettle of companies in every industry. Quick reactions and responses are essential, but that’s impossible without a proactive approach to a rapidly changing landscape.  

What lies ahead in 2023 (and beyond) requires an intelligent supply chain strategy to help you automate and accelerate your allocation processes to ensure the right product assortments arrive in stores and back stock that’s held in distribution centers is right sized. In support of your strategy, you need solutions that help you rapidly address shortages and avert crises.  

Supply Shortages Continue 

It seems counterintuitive, but even though the number of cargo ships was drastically reduced at various points in the last two-and-a-half years, ships sat at ports waiting to be unloaded due to labor shortages – a problem that persists today and contributes to ongoing supply shortages that exacerbate supply chain disruption.  

Transportation and shipping issues aren’t the only problem, of course. The computer chip shortage impacting the auto industry was capacity related – fires in a manufacturing plant, not enough factories to produce the chips due to increased demand, and limitations within the industry to accurately forecast demand for various types of chips meant many carmakers were forced to suspend production. 

Supply constraints are nuanced and complex and these are just two examples of how such constraints can play out on a global scale. We know you’re looking for better ways to work around short-supply challenges in your supply chain’s day-to-day operations – here are four ways that the Logility® Digital Supply Chain Platform addresses those challenges with intelligent, optimized allocation. 

Solution 1: Fair share – everyone gets something 

The fair-share methodology distributes or allocates a quantity based on the values already at low levels, essentially prorating it based on the existing values.  

This could be used for something as simple as a complete flat spread if there was no demand or no available inventory at any level. It could be used to make sure everyone gets roughly the same amount of inventory. There could be some rounding up or down here and there, but essentially there is a flat-spread distribution across the different entities that are being allocated to. 

For example, let’s consider one servicing location that distributes to three destination locations. Using fair-share distribution, you’re going to look at the forecast for each of the destination locations. You can do a fair-share or push proration distribution that would take the available inventory and spread it to the locations in the same ratio as their forecast, so everyone gets a ratioed amount of what they were forecast to get.  

The fair-share distribution is best used when you don’t have prioritization of any kind, whether by location, account, customer, or demand type. You may also want to use this method if you have no additional product scheduled to arrive, ensuring every customer receives something because you won’t be able to fulfill later with additional supply. 

Solution 2: Demand prioritization – first come, first served 

The opposite of fair share, this method looks at prioritization: How can you satisfy demand when you want to prioritize certain locations? The Logility platform allows you to use demand prioritization among accounts, regions, customers, channels, or locations, depending on your priorities, to determine where constrained inventory should be sent.  

You can prioritize different types of demand, such as regular price forecasts or promotional forecasts, and move onto lesser priorities from there. This gives you a lot of flexibility and insight into how the prioritization behavior takes place.  

Let’s say you’re looking at a plan over a 12-month period, and you see some constrained inventory. You can easily identify late fulfillment, lost revenue, lost demand, or a demand drop that are a result of supply constraints.  

The platform also allows you to look at various scenarios so you can see the impact on your plan before you commit to it. You can see a demonstration of this function in action on our webcast Crisis Averted: Optimize Allocation of Constrained Supply and view the immediate impact of prioritization on revenue and service levels. 

Demand prioritization is best if you have tiered customers or groups or locations (known priorities), you need to maximize metrics like profitability over equitability, or you need to short supply for the present but have more products coming in future. 

Solution 3: Rules-based allocation – consider multiple factors 

While fair-share and demand prioritization are mirror images, the rules-based allocation method allows you to take multiple criteria, order them sequentially and recommend quantities for distribution.  

For example, an apparel company might pick certain colors and sizes of a single style to distribute. The selected criteria create a workflow – a set of saved allocation criteria configured based on business needs. These criteria can be based on the product line, the user, the organization, or however your list needs to be configured to meet your business requirements.  

You can also use rules to automate this process. For example, if you’re allocating something from a particular vendor, use criteria A, but if you’re allocating something from a different vendor, use criteria B – or even use it with the same vendor. 

You could indicate that if there is a new item, use criteria A; if this is considered an existing item, use criteria B, and so on, and you can set this up to run automatically and unattended. There are many criteria you can consider for your workflow.  

The user would go in after the fact, review the allocation, make any adjustments they want, and then either approve or adjust the allocation to complete the process. 

The rules-based allocation method is best used if you want to consider multiple factors rather than forecast priority or fair share. If you’re not sure whether more product is coming in, you can cover part of your distribution and let need dictate the rest. 

Solution 4: ‘Open source’ – flexible configuration 

While it’s not an official term, ‘open source’ sums up what’s possible using this methodology – it’s the epitome of configurability. Not only is the methodology or the logic the system uses completely configurable, but it can be used to distribute products and the source and supply of what you’re distributing can also be configured.  

Let’s look at one scenario. You can use prioritization, or the “greedy” (first come, first serve) criteria. Customer one is your highest priority, so they are served first. Customer two gets the balance of what’s left over, and, in the “greedy” methodology, customer three gets nothing.  

You can also configure this to whatever prioritization logic you need. You are not limited to the inventory or supply or product that’s been the focus so far. If you’re looking at available capacity over time, for example, you can allocate that just as you did with your products. You can prioritize which products take precedent over other products to make sure they’re used to fulfill unused capacity first before moving on to other products. This is useful for key products you want to prioritize for production – new products, highest margin products etc.  

Because of its completely flexible configurability, you could use it in any situation or when none of the other methodologies can effectively optimize allocation of constrained supply.  

Make Better Supply Chain Decisions That Align with Business Goals 

These four methodologies for optimizing allocation of constrained supply can be used to deal with inventory challenges in a way that matches the goals of your organization while you deal effectively with any supply chain crisis. It’s not a one-size-fits-all proposition, but the data you’ll have available through the Logility platform means you’ll make better decisions and improve your overall supply chain strategy. The methodologies, which are all part of the platform, can be used as you grow and adapt to change. 

Just like supply chain challenges, these solutions aren’t specific to any vertical or industry. Constrained supply is a universal problem, and Logility has the solutions. From integrated business planning to demand and supply planning and optimization, to vendor management and the advanced analytics you need, we’ll deliver a digital, sustainable supply chain that powers the resilient enterprise. Hone your competitive edge and overcome any disruption. Your supply chain won’t fix itself, and there’s no time to waste. Let’s get started

To see the Logility platform in action and solving for the supply challenges covered here, watch our on-demand webcast Crisis Averted: Optimize Allocation of Constrained Supply