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Allocations and Back Orders


Back ordered items are not allocated! It is as simple as that. When you enter a sales order and back order a quantity of items, those items are not allocated. How then can a firm reserve this quantity of items for the sales order?

A firm needs to decide how allocations are to be used first. When products are ordered today and shipped tomorrow, immediate allocation of items on the orders is desirable. When items are ordered today and shipped weeks or months from now, allocations should occur later. Shortages of items aways create issues with allocations.

What, exactly, however, is an allocation?


Dynamics GP uses a hybrid allocation system. When no lot, serial, or bin tracking is used, then allocation is considered soft. When lot, serial, or bin tracking is used, allocation is considered hard.

Soft allocation imposes no limits or restrictions on a distribution system. More items than exist in the warehouse can be allocated and items can be shipped to any customer on any order.

Hard allocation, however, restricts the movement of items in stock, depending on the tracking/control system in use for the item. For example, with binned items, sufficient quantity of the item must exist in the selected bin for the item to be allocated. Once allocated, quantities in the bin can be used to fulfill the sales order but allocated quantities cannot be moved out of the bin to other bins.

When serial or lot tracking is used, during order entry the user has the opportunity to assign a specific serial or lot number to a sales order. This pre-assigned tracking number must be used to fulfill the sales order and the allocated items cannot be used in other transactions! Alternately, the serial or lot number can be left unassigned until fulfillment, leaving the sales order soft allocated.

So...what about shortages?

When items are hard allocated, the item must exist in inventory to be allocated. You cannot assign a serial or lot number of an item to a sales order if that serial or lot number does not exist in inventory. If serial, lot, or bin numbers are not identified until a sales order is actually picked and fulfilled, then no problem exists. Orders are entered and the tracking numbers are selected at fulfillment, when the parts are actually on hand and available to be picked.

When an order is entered for a quantity that does not exist in inventory, the system asks the user about the appropriate action. Choices include back ordering the entire quantity, back ordering the balance, or overriding the shortage. (Yes, there are some options to cancel the line item on the order.)

Bin based items require quantities on hand to allocate items. Thus if a bin based item is entered on a sales order and a shortage exists, then the item must be unallocated. Typically, this means using an order document type that does not allocate at time of order entry or by back ordering the item. Remember that back ordered items are not allocated during order entry.

Serial and lot tracked items can be entered on sales orders even if shortages exist by simply not pre-selecting the tracking numbers. Leave it to the picking/fulfillment team to identify the serial or lot numbers used. Here, shortages can be overridden and the total amount ordered can be allocated.

Of course, non-tracked/non-binned items can be entered on orders and the shortage overridden, allocating the entire quantity. This provides an easy visual check of available quantities to show shortages.

At firms with longer delivery times, orders can be entered into document types that do not allocate items at all. As the delivery date approaches, these documents are transferred to new documents that do allocate. Advanced distribution with Fulfillment Orders is an excellent scheme as tools are provided that can pull items from unallocated orders where sufficient quantity on hand exists and transfer those items to an allocated fulfillment order! There are also processes to batch allocate orders without using the fulfillment order process.

This short document shows that a lot of thought needs to be given to a firm's order processing and allocation procedures. Work with your consultant to make sure the scheme used is appropriate for your firm. Refer to our book Understanding Sales Order Processing for more information on order processing and allocation. And make sure you are using allocations for the right purposes.