What is Inventory Allocation?

Published

October 22, 2026

Last updated

October 22, 2026

Definition

Inventory allocation, also called stock allocation, is the process of deciding how much available inventory to assign to each location, sales channel, or customer. Locations include warehouses, distribution centers, stores, and factories. The goal is to meet demand at the lowest cost, using data such as demand forecasts and capacity limits.

Good allocation reduces stockouts and excess stock, lowers carrying costs, and improves service levels. It also cuts the cash tied up in inventory, which improves working capital. Because allocation connects demand forecasts, supply constraints, and financial targets, teams use it to model scenarios alongside capacity planning when supply runs short.

Inventory allocation differs from supply planning, which decides what to produce or buy and when. Allocation decides where existing and incoming stock goes. Common methods include push, pull, and just-in-time allocation.

Related terms

Supply Planning

Integrated Business Planning (IBP)

Capacity Planning

Working Capital

Frequently Asked Questions

How is inventory allocation different from supply planning?

Supply planning decides what to produce or buy and when, while inventory allocation decides where existing and incoming stock goes. Allocation works within the supply that the supply plan makes available.

How is inventory allocation calculated?

A common proportional formula is: location allocation = (location demand forecast ÷ total demand forecast) × available inventory. Planners then adjust the result for capacity, cost, and service constraints.

What's the difference between push and pull allocation?

Push allocation sends stock to locations in advance based on demand forecasts, while pull allocation replenishes locations in response to actual demand. Just-in-time allocation is a form of pull that delivers stock close to when it's needed.