Inventory Allocated is the portion of inventory that has been reserved or set aside for specific orders, purposes, or future anticipated demands. Once inventory is allocated, it is no longer considered available for other orders until it’s either shipped or reallocated.
Effective inventory management requires a clear understanding of both available stock and demands. Inventory Allocated plays a pivotal role in this process. When a customer places an order, the required items are “allocated” to that order, ensuring they’re reserved and won’t be sold to another customer. This prevents overselling and ensures timely order fulfillment.
The process of allocation can be manual, where a warehouse worker physically sets items aside, or automated, where inventory management systems automatically update stock levels and allocations based on incoming orders.
Key aspects of Inventory Allocated include:
An online retailer receives an order for 10 units of a particular product. Those 10 units are then allocated to that order, reducing the available stock by 10 units.
A manufacturing company might allocate raw materials to specific production runs, ensuring they have the necessary components on hand when production starts.
What happens if allocated inventory isn’t shipped?
If for some reason an order isn’t fulfilled, the allocated inventory can be reallocated to other orders or returned to general stock.
How does inventory allocated differ from inventory on hand?
Inventory on hand refers to the total quantity of an item available in stock. Inventory allocated is the portion of that stock set aside for specific purposes. The difference between the two gives the available inventory for new orders.
Can inventory be over-allocated?
Ideally, no. However, errors in inventory management or system glitches can lead to situations where more inventory is allocated than what’s on hand, leading to potential stockouts.
How do businesses manage inventory allocation efficiently?
Many businesses use advanced inventory management systems or Enterprise Resource Planning (ERP) systems that automate allocation based on predefined rules and real-time stock levels.
Is inventory allocation relevant for all types of businesses?
While especially crucial for businesses with high order volumes or limited stock, any business that sells products can benefit from effective inventory allocation to ensure timely order fulfillment and customer satisfaction.