Allocation
Definition
The process of assigning available inventory to competing demands, such as customer orders, channels, or locations, especially when supply is insufficient to cover everything. It decides who gets stock when there is not enough for everyone.
In Practice
Allocation has a routine mode and a crisis mode. Routinely, order management systems allocate on-hand stock to orders as they release to the warehouse, reserving units so two orders cannot claim the same pallet. In shortage situations, allocation becomes a policy decision: fill orders first-come-first-served, prioritize strategic customers, ration everyone proportionally (fair-share), or protect a key channel.
Planners own the rules and the exceptions. Poorly designed allocation quietly rewards whoever orders earliest or loudest, while deliberate rules align scarce stock with margin, contracts, and strategy. Allocation also applies to pushing stock outbound: deciding how a limited production run is split across regional DCs.
Example: a toy maker receives 60,000 units of a hit item against 100,000 units of orders. Leadership sets fair-share allocation with a floor for two contractual retail partners, and the planner runs the split so every account receives at least 45 percent of its order before launch week.
Related Terms
The uncommitted portion of current and planned inventory that can be promised to new customer orders. ATP tells sales what can be delivered, and when, without stealing from existing commitments.
BackorderA customer order, or portion of one, accepted for fulfillment despite the item being out of stock, to be shipped when inventory becomes available. Managing backorders means tracking, prioritizing, and clearing this unmet demand.
Fill RateThe percentage of customer demand satisfied immediately from available stock, measured by units, lines, or complete orders. It captures how much demand you actually fulfilled, not just whether a stockout occurred.
On-Hand InventoryThe physical quantity of stock currently present in a location, regardless of whether it is committed to orders. It is what you would find if you walked out and counted the shelves.