Best Inventory Allocation Strategies for eCommerce Businesses

“Sorry, this item is out of stock in your area.”

Meanwhile, another warehouse is overflowing with the same product.

This isn’t just an inconvenience; it’s poor inventory allocation. And it leads to lost sales, stock lying in the wrong locations, and disappointed customers.

For Shopify brands, the challenge only grows with multiple sales channels and fast-moving demand.

We break down how inventory allocation works, the key concepts behind it, and how to do it effectively using the right tools.

Understanding Inventory Allocation

Inventory allocation is the process of strategically distributing available stock across different locations, sales channels, or customer orders to meet demand efficiently. 

The goal is to make sure the right products are in the right place at the right time to meet demand without excess or shortages.

The process gives you a clear framework for managing inventory across regions and channels, so that your supply chain can easily respond to fluctuating demand and shifting customer behaviors.

Benefits of Effective Inventory Allocation for Shopify Stores

Inventory allocation optimization can make a big difference in the operations of Shopify businesses. Here’s a closer look at the key benefits.

1. Optimized inventory levels

What happens when one warehouse is overflowing while another runs dry? You lose sales in one location and increase carrying costs in another.

Effective inventory allocation solves this by distributing stock based on real demand across regions and sales channels. 

It ensures products are available where they're needed most, so you can fulfill orders faster, avoid costly overstock, and prevent stockouts before they happen.

2. Improved cash flow

When too much cash gets used up in slow-moving stock and unwanted expenses, you are not left with enough to spend on marketing, new product launches, or scaling your Shopify store. 

Effective inventory allocation ensures your products are placed where they’re most likely to sell, freeing up cash and reducing waste. 

It helps you avoid unnecessary costs like warehousing, insurance, and discounting unsold items, while also minimizing expenses tied to emergency restocking, expedited shipping, and missed sales from out-of-stock SKUs.

For Shopify sellers, this financial flexibility is critical for staying agile in a competitive market.

3. Enhanced customer satisfaction

Imagine a shopper placing an order only to see “out of stock” at checkout or face long delivery delays.

That’s the kind of experience that drives customers away. In fact, 40% consumers in a 2023 KPMG survey expressed concerns about stockouts when shopping online. 

Effective allocation makes sure popular products are available where and when they’re needed. This leads to faster fulfillment, fewer backorders, and accurate stock visibility across channels that helps build trust and increase repeat purchases.

Important Concepts in Inventory Allocation

Successful inventory allocation relies on a few key concepts. Here are some of the important ones to consider

1. Demand forecasting

Demand forecasting is the process of predicting how much of each SKU customers will buy over a specific period. For inventory allocation, it provides the baseline numbers that guide where and when to send stock.

Without accurate forecasts, you run the risk of two major issues: stockouts in high-demand areas and overstock in low-performing ones; both symptoms of poor allocation.

In ecommerce, forecasting also impacts inventory cost allocation. Inaccurate predictions can lead to higher storage costs, unnecessary markdowns, and expensive rush shipping as you scramble to move stock to meet unexpected demand.

If you're struggling to predict where and when to stock, our demand planning guide is a great place to start.

2. Safety stock 

Safety stock is the buffer inventory you maintain to protect against demand spikes and supplier delays. It plays a key role in inventory allocation by ensuring high-demand locations stay stocked, even when forecasts aren’t perfect.

To set the right safety stock levels, businesses factor in demand variability and supplier lead times. This helps allocate inventory where it's truly needed, without overcommitting to slower-moving locations.

Common strategies include

• Calculating buffer stock based on average demand during lead time
• Adjusting safety stock for high-priority locations or sales channels
• Balancing availability with carrying costs to avoid overstocking

To accurately calculate safety stock for your Shopify stores, check out this article. 

3. Lead time considerations

Lead time is the time between placing a purchase order and receiving the stock. It directly affects how inventory is allocated because longer or inconsistent lead times make it harder to keep stock where it’s needed.

To avoid stockouts, businesses often adjust allocation strategies by

• Holding extra stock in high-demand regions with longer lead times
• Prioritizing faster-moving SKUs for warehouses closer to key markets
• Factoring in supplier lead time variability when planning replenishment

Understanding and planning for lead times help ensure stock reaches the right locations at the right time.

Key Inventory Allocation Methods

There are different ways to allocate inventory across locations and channels. Each approach has its own strengths and is suited for specific business needs.

Let’s quickly look at some of the common inventory allocation methods 

1. Rule-based allocation

This allocation method uses predefined rules to decide how stock is distributed. These rules can be based on factors like sales volume, location priority, or customer type.

Here’s a rule-based inventory allocation example.

So, you might set a rule to send 50% of the inventory to your top-performing warehouse and divide the rest evenly across the others. Or you could prioritize high-value customers during limited stock situations.

It works well for businesses that have predictable patterns and want control over how inventory flows without relying on complex systems.

This approach is most effective when

• Demand is relatively stable across locations
• You need a simple and transparent system for allocation
• Business priorities are clear and don’t shift frequently

The method is easy to set up, but it may struggle when demand becomes highly dynamic or unpredictable.

2. Demand-based inventory allocation

Demand-based allocation distributes inventory according to historical or forecasted demand at each location. Locations with higher expected sales get a larger share of stock.

This method uses sales data and demand forecasts to guide allocation decisions. It ensures high-performing stores or channels stay stocked while slower locations receive only what they can sell.

It’s a good fit when:

• You have reliable sales data or accurate demand forecasts
• Demand varies significantly between locations
• Avoiding stockouts in high-demand areas is a priority

The downside is that it depends heavily on forecast accuracy. Errors in projections can lead to overstocking or shortages. 

Want to learn how to achieve accuracy in your demand forecasts? Here’s a complete guide. 

If you use demand-based allocation technique, Prediko is a perfect fit. It automates stock distribution based on real-time demand and sales data.

3. Location-based allocation

Location-based allocation assigns inventory based on geographic or logistical factors. It might prioritize warehouses closer to key markets or allocate more stock to locations with higher foot traffic.

This approach is especially valuable for Shopify stores with multiple fulfillment locations, as it keeps inventory closer to customers, enabling faster, more efficient fulfillment.

Best suited for situations where

• Proximity to customers impacts delivery times and costs
• Certain regions consistently show stronger sales
• You’re optimizing for logistics and fulfillment speed

While straightforward, it can miss sudden changes in demand across different regions. 

4. First-come-first-served (FCFS)

FCFS allocation fulfills orders in the order they’re received, regardless of region, priority, or channel. It’s straightforward and works well when inventory is limited and needs to be distributed fairly.

This approach is straightforward and works in scenarios with limited stock or emergency restocks. However, it can disadvantage high-priority customers, key retail partners, or fast-moving sales channels

It works best when

• Stock levels are tight, and immediate distribution is needed
• Demand is unpredictable and fairness is a priority
• There’s no clear historical data to guide allocation

FCFS is fast to implement but offers little strategic control over inventory flow.

5. Priority inventory allocation

Priority allocation assigns stock based on predefined tiers or rankings. High-priority customers, sales channels, or locations get inventory first, with remaining stock distributed to others.

This method is often used during product launches or when supply is limited. For example, premium customers may get early access to popular products while other customers wait for restocks.

It’s ideal when

• Certain customers or channels generate higher revenue
• Supply constraints require careful stock distribution
• You want to strengthen relationships with top-tier buyers

The challenge lies in setting fair and transparent priorities to avoid alienating lower-tier customers.

Effective Inventory Allocation Strategies You Must Implement

Now, we’ll walk you through some tried-and-tested inventory allocation strategies, how they work, and when to use each one.

1. Choose centralized over decentralized inventory systems

Shopify brands managing multiple SKUs, fulfillment locations, or channels need clear, real-time visibility to allocate inventory effectively. 

One of the smartest moves for growing Shopify brands is to centralize your inventory management through a single platform, rather than juggling data across disconnected systems, spreadsheets, or apps.

With a centralized inventory system (like Prediko), you can see all your stock, sales, and orders across every channel, warehouse, and location in one unified dashboard.

That means smarter, faster decisions about where inventory should go and how much to allocate.

If you're managing inventory through separate tools for each warehouse, store, or sales channel, you're more likely to face data silos, overstock in some areas, stockouts in others, and wasted time reconciling fragmented data.

2. Use real-time inventory tracking

Real-time inventory tracking gives you instant visibility into stock levels across all locations and sales channels. For Shopify stores, this is critical for preventing stockouts, allocating inventory accurately, and maintaining smooth fulfillment.

When inventory data is delayed or inaccurate, it can lead to overselling, missed orders, and frustrated customers. 

Real-time systems reduce these risks by keeping your stock data perfectly synced across your Shopify store, marketplaces, and warehouses, so you always know what’s available, where, and when.

3. Prioritize allocation for perishable or time-sensitive products

Not all products should be treated equally when it comes to inventory allocation. Items with shorter shelf lives or seasonal relevance should take top priority.

For example, skincare products with expiry dates, food and beverage items, or even trend-driven fashion SKUs need to move faster. 

Allocating these products to high-demand or faster-turnover locations ensures they don’t sit idle, expire, or become obsolete before they’re sold.

By prioritizing these SKUs in your allocation strategy, you can

• Minimize write-offs and markdowns
• Improve inventory turnover
• Reduce the risk of waste or outdated stock hitting your shelves

This strategy is especially important for Shopify brands in categories like beauty, wellness, and CPG, where timing directly impacts product value and customer satisfaction.

Managing FMCG inventory requires its own playbook; this guide covers it all with important steps broken down. 

Smart Inventory Allocation Software for Shopify 

Prediko is built specifically for Shopify brands that want to move beyond manual planning and make smarter, faster inventory decisions. 

With built-in demand forecasting and multi-location visibility, Prediko helps you allocate stock where it’s needed most, automatically.

Whether you're selling through one store or multiple Shopify storefronts, Prediko syncs your sales, inventory, and supplier data in real time.

That means you can avoid overstocking low-performing locations and prevent stockouts in high-demand areas. 

Here are the features that help you make confident allocation decisions.

1. AI-powered demand and supply planning

Prediko uses AI to forecast demand and plan supply across SKUs, locations, and periods, so you can allocate inventory based on demand, i.e., where it’s actually needed. 

It factors in trends, seasonality, and sales velocity to give you clear, data-backed restock recommendations.

2. Raw materials management

For brands that manage production, allocation starts at the source. 

Prediko helps you plan raw material purchases in sync with forecasted demand, so you don’t overproduce or understock critical materials. 

3. Allocation execution with PO management

Once you know where stock should go, Prediko streamlines the execution with built-in PO management. Easily raise, track, and adjust purchase orders based on your allocation plans, without toggling between spreadsheets or tools.

4. Inventory transfers to fix allocation errors (Releasing in July)

Even the best plans sometimes need adjustments. With our inventory transfers feature, you can quickly shift stock from overstocked to understocked locations, reducing excess, fixing gaps, and avoiding unnecessary reorders.

5. Multi-store and warehouse management & 60+ integrations

Manage inventory across multiple Shopify storefronts and warehouses from a single dashboard. Prediko integrates with 60+ WMS and 3PL partners, giving you complete visibility and control, no matter how complex your operations are. 

6. Analytics and reporting

Track how your allocation decisions are performing in real time.

Prediko’s 10+ report templates and analytics surface key metrics like sell-through rate, inventory turnover, and dead stock by location, so you can double down on what’s working and fix what’s not.

Smarter Inventory Allocation, Stronger Bottom Line

Effective inventory allocation ensures the right products are in the right place at the right time. It reduces costly stockouts, prevents excess inventory, keeps your cash flow healthy, and improves customer experience.

We explored key methods, strategies, and tools that can help Shopify businesses allocate smarter and stay ahead of demand.

Prediko takes it further by offering you features like AI-powered demand planning, real-time tracking across multiple stores and warehouses, and inventory transfers. 

It connects every part of your inventory workflow, so your allocation decisions are faster, more accurate, and aligned with your business goals.

Start your 14-day free trial today and see how Prediko can help with inventory allocation.

Frequently asked Questions

1. How to arrange inventory on Shopify?

You can manage and arrange inventory in Shopify by assigning stock levels to products across different locations. Use the Shopify admin to track stock and sync inventory with apps like Prediko for more advanced control.

2. What does 10 inventory locations mean on Shopify?

It means you can manage inventory across up to 10 different locations, like warehouses, retail stores, or fulfillment centers, directly in your Shopify account.

3. What is inventory allocation, and why is it important?

Inventory allocation is the process of deciding where and how much stock to distribute across your sales channels or locations. It’s important because it ensures the right products are available in the right place, reducing stockouts, overstocking, and fulfillment delays.

4. What are the best methods for inventory allocation?

Common methods include rule-based, demand-based, location-based, first-come first-served, and priority allocation, each suited for different business sizes and sales patterns.