Why we don't lock stock to an order

Why we don't lock stock to an order

Some of the wholesale businesses we speak to are allocating stock to orders because the system they're on insists. It won't despatch a line until stock has been allocated to it, so allocation happens as each order is entered.

When we set their stock up, allocation becomes a figure the system reports rather than a hold on the stock. It's usually queried, and it's a fair question: a reservation is the thing that stops someone else's order taking the units you've promised.

Allocation follows entry, despatch follows dates

The difficulty is that the two happen in a different order. Stock is allocated in the order that orders arrive. Stock goes out in the order that customers need it.

While there's enough stock to go round, that doesn't matter. When a line is short, someone has to choose. An order needed on site next week has to go ahead of one placed a fortnight earlier for a job that hasn't started, and with a hard reservation that means un-allocating the second order and allocating the first. Orders arrive and dates move every day, so that work never stops, and all it does is bring the system into line with a decision a person has already made.

It also leaves stock sitting behind orders nobody is looking at. An order whose required date came and went, and which nobody updated, keeps its reservation until someone remembers it exists.

What replaces it

Every product carries four figures: in stock, allocated, on order and free. Free is in stock less allocated, so sales still see what's uncommitted before they promise anything. The stock itself isn't held behind a particular order.

The choice about who gets short stock is made at despatch instead, from the stock outlook. That report shows, day by day or week by week, what's in stock, what's due out against open orders and what's arriving on purchase orders, with the shortfalls marked. Purchase order lines carry their own required-by dates, so a delivery arriving in instalments appears in the forward view as the instalments land, not as one lump on the day the order was raised.

Orders stay on that view until they're fulfilled, and the view can be set up to put the overdue ones at the top, so an order whose date came and went is the first thing the team sees.

From there the team decides what goes out. Part-despatch sends the lines that are available and leaves the rest open. A consolidated pick list groups everything due to go that day — by supplier, product, category or whatever suits the warehouse — so one trip covers the same item across several orders, and per-order pick lists and labels handle the packing.

The trade-off

There is a trade-off here. With nothing locked, there is nothing in the system to stop stock going out against the wrong order. The control is in the reporting and in the habit of planning despatch from the forward view rather than order by order as each one comes up on screen.

For most of the wholesale operations we work with, that's worth the keystrokes it saves, because the reservation wasn't making the decision anyway. Where stock genuinely has to be set aside and stay set aside, some of our customers transfer it into a location of its own. It comes out of the free figure and out of the despatch decision until it's transferred back.

Where this advice stops

None of this is an argument against allocation as such. A business with enough stock to cover its open orders never meets the problem, because it never has to choose between two customers. The businesses that feel it are the ones where lines run short often enough that somebody is re-allocating every day.

The advice is only this: if allocating and un-allocating takes up part of every day, check what the reservation is actually giving you that a good forward view wouldn't. For most wholesale operations we work with, that gives them the control they need, with a lot less admin.

If you're weighing this up for your own business, we're happy to go through how your stock moves on a call.

https://www.goworkhorse.com/who-we-help/wholesale-distribution