Understanding the allocation timeline is essential for ensuring that products are available in-store when retailers plan them, while also avoiding early overstocks. This timeline outlines the end-to-end process of how inventory is forecasted, ordered, delivered, and displayed, as well as how future demand is planned.
Operational timeline breakdown
Lead Time
- Allocation Date
The purchased inventory (or part of it) is available at the Warehouse on that date, including incoming orders (if any), and the Pick & Pack process can start at any time from that date. - Picking & Packing (Warehouse)
Once goods are available, the Warehouse proceeds to prepare the requested units physically, by picking and packing them. - Dispatch (Warehouse)
Once goods are picked & packed, they’re then dispatched and shipped out to the destination. - Transport (Transit Time)
Once goods are sent out, they’re then transported to the assigned location. This step varies in shape and duration depending on geographical and logistical factors, such as logistics network structure (direct delivery, intermediate hubs, and other logistic facilities) and transport modes (road, rail, water, air). - Destination arrival
Goods are delivered and received at the destination, but no goods unpacking or any other accommodation is done by the receiver.
Planning Horizon
- Store display
Goods are unpacked and accommodated for sales or stocking, but fully available for the point of sale to attend to the demand or any other needs. This step triggers the Planning Horizon dates start and becomes the 1st PH day. - Target coverage
The Planning Horizon days determine for how long the demand needs to be attended to. It is essential to forecast the demand accurately enough for this period to avoid stock-out situations. The demand forecast estimated for that period becomes the target stock baseline in which to calculate the Service Level afterwards and manage the risk factor.
☝️This is a simplistic approach as no other parameters are taken into account (sales threshold, warehouse stock scarcity, visual rules, minimum displays, pack size, prepacks, residual value…).
Forecasting timeline breakdown
Stock projection
Throughout the whole Lead Time period, Nextail uses an innovative forecasting technique called Projected Inventory Level (PIL), also known internally as Stock Projection.
For each SKU, algorithms estimate the stock that will remain available in a store to attend the Planning Horizon demand after receiving the next scheduled shipment (which, according to the Calendar Plan, may be dispatched on the present day or a future date).
The components included in this projection formulation are the following: stock on-hand, demand + safety stock until in-transit arrival, in-transit stock, and demand + safety stock until next scheduled shipment arrival.
In case the in-transit data is not provided by the retailer in a disaggregated way by ETA and SKU-quantity, if multiple in-transit deliveries overlap at any given moment, the approach applied by default determines that any in-transit quantity will arrive at the destination as a single and unique shipment belonging to the latest previous delivery. As soon as any previous delivery hits the destination, in case multiple transits overlap, the system gets automatically recalculated and balances the excess or shortage of inventory for the next delivery immediately.
- Commercial stock, also known as Stock-on-hand (SOH)
Units physically available at the location to attend sales purposes - Demand + Safety stock until in-transit arrival
Estimated unconstrained demand until the in-transit stock arrives (if any), where sales can be attended only with the available stock-on-hand at the location. - In-transit stock, also known as On-the-way (OTW)
Ongoing units being transported to the destination, not yet available to attend sales purposes. - Demand + Safety stock until next scheduled shipment arrival
Estimated unconstrained demand from the ongoing in-transit stock arrival (if any) to the arrival of the upcoming new shipment, where sales can be attended with the remaining available stock (if any), plus the in-transit stock that becomes available (if any).
☝️During an Initial Allocation, it is assumed there is no previous stock exists at the location, so the stock projected and available to attend to the demand will undoubtedly be 0. However, in case there is any existing stock-on-hand recorded when running an Initial Allocation scenario, this Projected Inventory Level technique is applied automatically, acting as a regular Replenishment or Reallocation.
Demand-driven target stock
Throughout the whole Planning Horizon period, Nextail uses a probabilistic demand forecasting model, combined with a service level target approach.
For each SKU, algorithms estimate the target stock baseline (demand-driven) and determine the final target stock (service-level-driven).
The components included in this formulation are the following: Planning Horizon demand and safety stock buffer.
- Planning Horizon demand
Represents the expected demand to occur for the whole period based on the arrival date of the upcoming shipment and the length of the target coverage days. It helps users to define how much stock is needed to meet demand for a given period and moment along the year, and serves as a target stock baseline (demand-driven) to determine the final target stock according to the desired service level. - Service Level
The stock-out risk management is dynamically conducted through the Sales Threshold. Thanks to the probabilistic model, each SKU-PoS-Unit has a statistical likelihood of selling (Poisson-based), considering the total demand as the mean value (λ) of the discrete probability distribution. In this way, Service Level % targets can be determined and attended to. High Service Levels require large inventory units, and low Service Levels require small inventory units, so it is essential to find a healthy balance between stock-out levels and inventory levels. Based on the PH demand and the desired Service Level, the final target stock is determined and set.
☝️This is a simplistic approach as no other parameters that might also act as target stocks are taken into account (Min Displays, Min IAQ, Min prepacks allocation, …).
Distribution Cycles
Initial Allocation
After an Initial Allocation, there may be continued deliveries in the form of Replenishment to maintain continuity in the Supply Chain and restock locations with demand as soon as possible.
For that to work, Initial Allocation Quantities must meet the demand for a period long enough to secure, at least, the product's availability until the arrival of the first replenishment. That means, based on the transit time and shipment frequency, the store receives enough inventory to last up to the arrival of the first replenishment.
This is achieved by ensuring that, for any store, the Planning Horizon length (target coverage days) is equal to or greater than the lead time plus the review period (shipment frequency). Otherwise, the store would probably get extremely early into a critical stock-out situation before it gets restocked.
📌 Goal: ensure that the IAQ covers a Planning Horizon period that, at least, lasts up to the delivery of the first replenishment after hitting the store for the first time.
Periodic review
After an Initial Allocation, the item is subject to a periodic review inventory policy that evaluates if it needs to be restocked or not (based on a dynamic reorder point), and how much (based on a dynamic up-to-level target), considering a periodic review period (cyclical pattern).
The diagram below illustrates how multiple supply chain cycles overlap in practice:
- Deliveries
- Delivery n (Initial Allocation)
- Delivery n+1 (1st Replen)
- Delivery n+2 (2nd Replen)
- …
Each review period starts with the whole cycle evaluation (lead time and planning horizon).
After this evaluation, if the available and in-transit stock is not expected to cover the demand until the completion of the next cycle, the stock needs are determined and proposed to be supplied to the location.
🔄 A well-balanced supply chain cycle ensures continuous stock availability without overstocking locations with dead inventory.
