Inventory is the fuel for an eCommerce business. As an Amazon seller, maintaining the correct stock balance is vital for maximum profitability. One can neither have lost revenue due to out-of-stock products nor can you keep excessive inventory resulting in higher FBA storage fees. Inventory Management for Amazon FBA Sellers requires a systematic approach to managing stock levels, forecasting demand, and ensuring that you always have enough stock to meet customer demand.
In this article, we will explore strategies that Amazon FBA sellers can use to improve their inventory management, including monitoring inventory levels, tracking inventory by SKU, using Amazon’s Multi-Channel Fulfillment, forecasting future demand, and watching your return rate. These strategies will help FBA sellers to manage their inventory better, avoid stockouts and improve their overall business operations.
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Inventory Management for Amazon Sellers
Amazon Sellers can improve their profits through better inventory management, which helps minimize storage fees and better revenue due to no lost sales.
What is Amazon Inventory Management?
Inventory management involves monitoring the inventory stock level and sales momentum with forecasted demand to ensure products are available for customers in the Amazon marketplace. It is a part of the supply chain management and monitors the flow of goods from sellers to buyers. One of the essential functions of the inventory management system is to keep a detailed record of each new or returned product after entering or leaving the fulfillment centers.
Amazon allows its sellers to manage their inventory by utilizing the in-house Amazon Inventory Management System. Each product can be sorted into five categories, and Amazon’s inventory management system will display the inventory status as follows:
Available: The product is ready for order fulfillment.
Inbound: Amazon fulfillment center has yet to receive the inventory. It may be in transit from the seller’s warehouse to the FBA fulfillment center.
Transfer: The inventory is moving within the Amazon FBA ecosystem, like being transported from another warehouse. It is not available for immediate order fulfillment but will be available soon.
Unfulfillable: The inventory is available in the warehouse but cannot be sold due to quarantine, damage, or other reasons.
Reserved: The inventory is undergoing a process within Amazon warehouse, like binning or being measured to check the product classification accuracy. It is not yet available for customer orders.
How can Amazon Sellers improve inventory management?
There are many ways that sellers can adapt to improve their inventory management strategy on Amazon. Some of the significant and most effective methods are:
- Use Amazon Inventory Management
- Understand the Supply Chain Lead Times
- Product Promotions & Pricing to Control Sales Velocity
- Plan for Seasonal Sales Fluctuations
- Understand the Inventory Turnover Rate
- Consider Dropshipping
Use Amazon Inventory Management
Use Amazon’s inventory management tools to monitor your inventory levels and ensure you always have enough stock to meet customer demand. Take help from Inventory replenishment and forecasting tools to predict future demand for your products and ensure that you have the right amount of stock. Amazon takes into account the historical sales for generating replenishment quantities. Keep an eye on your return rate to achieve even better accuracy.
The Selling Coach dashboard within the Amazon Seller Central provides vital inventory data to help retailers to monitor purchasing and sales needs. Sellers can see the selling probability of each product daily, weekly, and monthly. This data will help you to make decisions and strategies according to the new trends and buyers’ requirements. The central part where Inventory management Software helps is when the sellers tend to sell inventory through other channels and require complete inventory exposure and orders from all channels.
Understand the Supply Chain Lead Times
Supply chain lead time refers to the time it takes for a product to be received by the customer after an order has been placed. This time includes the time it takes for the product to be manufactured, transported, and delivered to the customer. The lead time can vary depending on the type of product, the supplier and manufacturer’s location, the transportation method, and other factors. Lead time can be broken down into several different stages, including:
- Procurement lead time: The time it takes to purchase raw materials or components
- Production lead time: The time it takes to produce the product
- Transit lead time: The time it takes for the product to be transported from the manufacturer to the warehouse or distribution center. For example, if your supplier is in China, this can be a significant time when goods are transported through sea freight.
- Distribution lead time: The time it takes for the product to be delivered to the customer. As an FBA seller, after your shipment is delivered to an FBA warehouse than onward, it becomes the responsibility of Amazon.
Managing and reducing the lead time can help businesses to improve their efficiency, reduce costs, and increase customer satisfaction. By understanding the lead time, businesses can make better decisions about inventory management, production scheduling, and logistics. Additionally, it’s important to note that Lead time can be different from the lead time of the order, which is the time between when the customer places the order and when the order is delivered.
Product Promotions & Pricing to Control Sales Velocity
Sales velocity refers to the rate at which a product is sold. Product pricing is one of the key factors that can be used to control sales velocity. By adjusting the price of a product, Amazon Sellers can influence the demand for that product and ultimately control its sales velocity.
Using more competitive pricing or running temporary promotions, such as promotions, deals, or coupons, can help to increase sales velocity. This can help to clear out older inventory or boost sales during slow periods. On the other hand, increasing Product prices to reduce sales velocity and stay in stock for longer until replenishment arrives can also be a good strategy. It ensures that the Best Seller Rank sustains a minimal impact, as going out of stock will result in the freefall of BSR.
Plan for Seasonal Sales Fluctuations
Seasonal sales fluctuation refers to the changes in sales that occur during different times of the year. Various factors, including changes in consumer demand, weather conditions, and holidays can cause these fluctuations. By understanding seasonal sales patterns, FBA businesses can better plan their inventory. While taking cue from the historical trend of the previous year and sales velocity in the recent past, an FBA seller must plan inventory replenishment with a safe margin to get as many sales as possible during peak demand time.
Understand the Inventory Turnover Rate
Inventory turnover rate is a metric that measures how quickly a business sells its inventory. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value during a certain period. The resulting ratio represents the number of times a business has sold and replaced its inventory during that period. A higher turnover rate indicates that a business is selling its inventory quickly, while a lower turnover rate indicates that it is struggling to sell the inventory.
A high turnover rate may indicate that a business is effectively managing its inventory, while a low turnover rate may indicate that a business is overstocked or that its products are not in high demand. It’s important to note that the ideal turnover rate varies by industry and business.
In the dropshipping process, the product manufacturers will have the inventory in their warehouse, and they will deliver the items on your behalf. The primary benefit of this technique is that you don’t have to maintain the inventory yourself; you will only purchase the items when you receive an order. Drop shipping looks lucrative on paper, but be mindful that it is not scalable and works well only for small-sized Amazon businesses or individual sellers.
In conclusion, inventory management is a critical aspect of running a successful Fulfillment by Amazon (FBA) business. By using the strategies outlined in this article, FBA sellers can improve their inventory management, avoid stockouts, and improve their overall business operations. These strategies include monitoring inventory levels, understanding the supply chain lead times, utilizing product pricing to control sales velocity, planning for seasonal sales fluctuations, understanding the inventory turnover rate, and considering dropshipping can also help sellers to optimize their inventory management. By effectively managing their inventory, FBA sellers can increase their profitability and improve Amazon Seller account management. Stay in stock & keep selling.