Amazon Inventory Management
One day that can happen to any Amazon seller: all of a sudden, you find out that you have no more inventory left, and you’re sold out. How could that be if you had a hundred units in stock just a week ago? Inventory management helps you answer why and avoid such situations in the future.
Inventory management maintains a balance between a lack and an excess inventory. Both are not good for your business. This post will discuss the importance of inventory management, the typical inventory issues sellers face, and the tips for effective inventory management.
What Is Amazon Inventory Management?
Inventory management refers to the process of managing inventory levels on Amazon. It involves keeping track of stock levels, restocking items, and ensuring that products are available to customers when needed. Amazon inventory management is critical to running a successful business on the platform.
Amazon sellers must ensure they have enough stock to meet customer demand while avoiding excess inventory. That can be challenging, especially for new sellers who may not clearly understand inventory management practices.
Why Is Inventory Management Important?
Effective inventory management is crucial for the success of any Amazon seller. Below you can find the key reasons why.
Optimized stock and business planning
By properly managing inventory levels, sellers can avoid overstocking or understocking products. Your stock amounts must be precisely what your customers will purchase over a specific nearest time. Optimized business planning and sales forecasting ensure enough stock to meet customer demand while avoiding excess inventory that ties up capital. Real-time inventory tracking helps provide optimal stock availability and helps streamline your business processes.
Improved customer service
Customers expect their orders to be fulfilled in a timely and efficient manner. Effective inventory management ensures that sellers have the products in stock to fulfill orders promptly and increases the accuracy and completeness of customer orders. That leads to satisfied customers who are likely to leave positive feedback and reviews, which, in turn, attract other buyers.
Reduced costs and time-saving
Effective inventory management can lead to cost savings by reducing the need for emergency restocking or excess inventory. It also saves time by streamlining the restocking process and reducing the time spent managing inventory levels. Using the just-in-time inventory strategy, you can order small shipments to replace inventory as you forecast and fulfill orders, thus reducing storage costs.
What Are the Typical Inventory Issues for Sellers?
Sellers on Amazon may face several types of inventory issues that can impact their business. If you encounter one of them, be sure you are not alone and that other merchants have successfully resolved them. You just need to know about them and be prepared.
Overstock occurs when a seller has excess inventory that is not selling. In its FBA fulfillment centers, Amazon classifies all products with over 90 days of supply as excess inventory and recommends moving them out of FBA after that term.
Impact of overstock
- Storage and handling costs: Overstocked items require more storage space, which can increase your storage and handling costs;
- Lost sales opportunities: Overstocking means you have fewer resources available to invest in other products, potentially missing out on sales opportunities. Overstocking can tie up capital and storage space and may lead to the need for deep discounts or the removal of excess inventory.
Tip. If you have FBA inventory, Amazon offers the FBA Inventory tool that helps track excess inventory, stranded inventory, and long-term storage fees.
Out-of-stock is the opposite of overstocking and occurs when you don’t have enough inventory to meet customer demand.
Impact of understock
- Lost sales opportunities: Customers can go to your competitors if they can’t find what they’re looking for on your Amazon store;
- Losing Buy Box: Understock or low stock levels can impact the Buy Box eligibility for the product. The Buy Box is a crucial feature on Amazon that highlights the product and allows customers to add it to their cart with one click;
- Damaged reputation: Customers will be less likely to trust your store if they regularly experience out-of-stock items.
Stranded inventory refers to products stored in Amazon’s warehouse but lost connection with an active Amazon listing and, therefore, unavailable for purchase. That means the stranded item is sellable, but customers can’t buy it. Moreover, though the item doesn’t sell, Amazon will still charge you for its storage.
Impact of stranded inventory
- Lost sales opportunities: Customers won’t be able to purchase the product if it’s stranded, leading to lost sales;
- Storage and handling costs: Stranded inventory still requires storage space and handling, which can increase your expenses.
Tip. Amazon helps you deal with stranded inventory by using the Fix Stranded Inventory tool. You must check the ‘Inventory’ > ‘Stranded inventory’ page regularly to ensure there are no alerts from Amazon.
Aged inventory refers to products remaining in stock for an extended period without selling. If your inventory is stored in Amazon fulfillment centers for 271 to 365 days, Amazon charges a surcharge for aged inventory. If it is stored over 365 days, long-term storage fees apply.
Impact of aged inventory
- Increased storage costs: For the inventory stored within 271-365 days, Amazon charges a monthly surcharge of $1.50 per cubic foot in addition to the regular monthly storage fees. After 365 days, FBA long-term storage fees are $6.90 per cubic foot or $0.15 per unit, whichever amount is greater;
- Cash flow problems: Aged inventory ties up your cash, making reinvesting in other parts of your business complex;
- Decreased profitability: Aged inventory is often sold at a discount to move it out of your inventory, leading to lower profits. If your inventory stays in the Amazon fulfillment center for a long time and you want to avoid long-term storage fees, you can ship it back and pay for a removal order, generating extra costs. Another option is to ask Amazon to dispose of the item, but this service also comes with a cost.
5 Tips for Inventory Management
Now that we’ve covered the most common inventory issues for Amazon sellers, let’s discuss five tips for managing your inventory effectively.
1. Timely restock popular inventory
One of the most important aspects of inventory management is ensuring you have enough inventory to meet customer demand. Monitor your inventory levels regularly, and restock popular inventory items before they sell out. Also, keep sufficient backup units to ensure you won’t run out of inventory because of supply chain failures. Consider using Amazon’s FBA Restock Tool to track your inventory levels and restock popular items before they sell out.
2. Monitor your Sell-Through Rate
Your Sell-Through Rate (STR) measures how quickly you’re selling through your inventory. Monitoring your STR can help you make informed decisions about which products to stock and when to restock them. You can calculate your STR by dividing the number of units sold by the number of units received, then multiplying the sum by 100 to get a percentage.
To get the number of units you need, use a sales forecasting method or analyze previous order quantities to estimate the demand. Avoid stocking more than you can sell to escape piling warehousing costs.
3. Reduce excess inventory
To avoid long-term storage fees, you need to manage your inventory effectively and timely remove it from Amazon warehouses if it stays there for a long time. If you detect products staying in Amazon fulfillment centers long-term, you can ship that inventory back to you. This way, you will avoid continuously accumulating monthly long-term storage fees, which are pretty expensive. You can also use discounts and promos to move inventory out. This way, you will not need to spend money on shipping it back or disposing of it in Amazon fulfillment centers, which entails a fee. If you sell items in substantial quantities, don’t send all of them at once to the fulfillment centers. Develop a timeline for how long it takes to cycle through your inventory.
4. Monitor your profitability and margins
If your inventory management works appropriately, that helps maintain healthy sales margins and reach profitability targets. Keep track of your prep, shipping, storage, and order fulfillment expenses to see if they meet your expectations. Additionally, identify the inventory that doesn’t sell, find out why, and eliminate such items in your store to reduce unnecessary costs.
5. Use inventory management tools
A reliable Amazon inventory management system ensures demand forecasting, alerts you when you run high or low on stock, enables barcode scanning, and tracks all necessary product information.
Tip. We recommend using SoStocked. It’s a fully customizable Amazon inventory management and forecasting software that applies a new forecast algorithm. With SoStocked, you can control your main Amazon inventory management forecasting seller pains: over-ordering, under-ordering, ordering late, transferring late, tracking orders and payment, juggling spreadsheets, managing bundles, following up on purchase orders, multiple marketplaces, and avoiding costly warehouse recounts.
As an Amazon seller, inventory management can make or break your business. Proper inventory management ensures you have the right amount of stock at the right time to meet customer demand while avoiding stockouts, overstocking, and other inventory-related issues. Proper inventory management ensures satisfied customers and increased sales.
However, in addition to effective inventory management, you must remember to select the right products to resell. Seller Assistant App helps you quickly research the right product to resell. It allows to immediately see if a product has previously triggered problems with account health. It is an all-in-one extension incorporating features vital for product research. It combines an FBM&FBA profit calculator, Quick View, Stock Checker, and Restrictions Checker in one tool.