Having too much inventory can lead to excess costs and slow sales while having too little can result in lost sales and dissatisfied customers. Striking the perfect balance in inventory levels is crucial for your success on Amazon.
In this article, we’ll discuss the significance of managing your inventory levels and understanding Amazon’s inventory management system. We’ll also cover the factors that affect inventory levels and the strategies and techniques you can use to optimize your inventory and improve your sales on Amazon.
By the end of this article, you’ll have a better understanding of how to manage your inventory effectively and implement best practices to ensure your success on the platform.
Why Should You Do Inventory Management on Amazon?
You may not realize it, but keeping track of your stock is critical to your success as an Amazon seller. Inventory management at Amazon is a crucial aspect of your business that you can’t afford to overlook.
Proper inventory management ensures that you have enough products in stock to meet customer demand, but not so much excess inventory that it ties up your capital.
Another benefit of effective inventory management is that it helps you identify which products are selling well and which ones are not. By tracking your inventory levels, you can quickly adjust your sales strategy to focus more on the products that are in high demand.
However, striking the perfect balance in inventory levels can be challenging, but it’s essential to meet customer demands to maximize your profits.
Understanding Amazon’s Inventory Management System
If you’re planning to sell on Amazon, it’s crucial to understand their inventory management system. This includes their Fulfillment by Amazon (FBA) program, which can help streamline the fulfillment process.
Additionally, you’ll need to familiarize yourself with key terms like ASIN, SKU, and FNSKU, as well as Amazon’s performance metrics like Buy Box percentage and inventory health index.
The Fulfillment by Amazon (FBA) program
The Fulfillment by Amazon (FBA) program allows Amazon to handle storage, shipping, and customer service for sellers. Here are some reasons why sellers choose FBA:
FBA takes care of everything from storage to shipping, so sellers don’t have to worry about these aspects of their business.
- Faster shipping
Since Amazon has warehouses all over the world, FBA can offer faster shipping times, which can lead to more satisfied customers.
- Access to Amazon Prime
When sellers use FBA, their products become eligible for Amazon Prime, which can increase sales.
- Lower shipping costs
Amazon has negotiated lower shipping rates with carriers, so sellers can save money on shipping costs by using FBA.
By using the FBA program, sellers can focus on other important aspects of their business, such as marketing and customer service, while Amazon takes care of the logistics. This can lead to increased sales and a better overall experience for both the seller and the customer.
Key Terms and Concepts Related to Inventory Management on Amazon
When you start selling on Amazon, you’ll come across several terms related to inventory management, such as ASIN, SKU, and FNSKU. It’s essential to understand these terms and concepts to efficiently manage your inventory and avoid any confusion.
Amazon Standard Identification Number is a unique identifier given to each product listed on Amazon. It helps Amazon identify and track products in their catalog.
Stock Keeping Unit is a unique identifier that you assign to each product you sell. It helps you keep track of your inventory and manage your stock levels.
The fulfillment Network Stock Keeping Unit is a unique identifier that Amazon assigns to each product that you send to their fulfillment centers. It helps Amazon track your inventory and ensure that the correct product is shipped to the customer.
Amazon’s Performance Metrics
These metrics are crucial in keeping your inventory levels in check and ensuring that your products are being seen by potential customers.
· Buy Box percentage
Refers to the percentage of time your product is featured in the Buy Box, which is the box on the right-hand side of the product page where customers can add items to their cart.
Maintaining a high Buy Box percentage is important as it increases your product’s visibility and credibility.
· Inventory Health Index
It is a measure of your inventory’s overall health and how well it is performing on Amazon. It takes into account factors such as your inventory’s age, sell-through rate, and stranded inventory.
Factors Affecting Inventory Levels
Staying on top of your inventory levels and the host of factors affecting it can help you maximize your opportunities on Amazon.
Demand forecasting and sales analysis
You can make informed decisions about inventory management at Amazon by analyzing sales data and predicting demand. This involves looking at past sales trends, identifying seasonal fluctuations, and monitoring changes in customer behavior. And by doing so, you can determine:
- Which products are selling well and which are not
- How much inventory you need to keep on hand
One effective way to forecast demand is by using sales analysis tools. These tools can help you identify patterns in customer behavior, such as which products are most popular during certain times of the year. You can also use them to:
- Monitor changes in sales volume
- Track promotions and discounts
- Identify potential areas for growth
By analyzing this data, you can make informed decisions about what and how much to stock, ensuring that you have the right inventory levels to meet customer demand and maximize your profits.
Seasonality and promotional events
If you want to keep up with the ebb and flow of customer demand, it’s important to understand how seasonality and promotional events can affect your sales.
Seasonality refers to the natural fluctuations in demand that occur throughout the year.
For example, sales of sunscreen and beach towels will likely increase during the summer months, while sales of winter coats and boots will increase during the colder months.
By analyzing your sales data, you can identify these patterns and adjust your inventory levels accordingly.
Promotional events, on the other hand, are planned events that can have a significant impact on your sales. Examples include Black Friday, Prime Day, and Cyber Monday.
During these events, customers are often looking for deals and discounts, so it’s important to make sure you have enough inventory to meet the increased demand.
Additionally, you may want to consider running your own promotions to help drive sales and attract new customers.
Lead time and order fulfillment duration
In today’s fast-paced world, it’s crucial to minimize lead time and order fulfillment duration to keep up with customer expectations. Amazon customers have come to expect fast delivery times, and if you can’t meet those expectations, you risk losing sales to competitors.
To manage inventory levels effectively on Amazon, you need to understand the lead time for each product and plan your inventory accordingly.
Lead time is the time it takes for an order to be fulfilled, from the moment the customer places the order to the moment it’s delivered to their doorstep.
Order fulfillment duration, on the other hand, is the time it takes to process and ship the order. These two metrics are closely related, and you need to optimize both to strike the perfect balance between inventory levels and customer satisfaction.
By closely monitoring lead times and order fulfillment duration, you can adjust your inventory levels to ensure that you always have enough stock to meet demand without carrying excess inventory that ties up your cash flow.
SKU prioritization based on profitability and popularity
By focusing on the products that are bringing in the most profit and those that are in high demand, you can make sure you’re maximizing your revenue and keeping your inventory flowing smoothly.
Here are three steps you can take to prioritize your SKUs based on profitability and popularity:
1. Use data to identify your most profitable products.
Analyze your sales history and determine which products have the highest profit margins. Focus on these products to ensure you’re maximizing your revenue.
2. Determine which products are most popular.
Look at your sales history to identify which products are selling the most. Make sure you have enough inventory of these products to meet demand.
3. Consider the seasonality of your products.
Some products may be more popular at certain times of the year. Take this into account when prioritizing your SKUs.
Inventory Management Strategies
When it comes to managing your inventory on Amazon, there are several methodical strategies you can use to optimize your storage and replenishment.
1. Use the Just-in-Time (JIT) inventory management approach.
You’ll want to make sure that your inventory is like a well-oiled machine, with just enough parts to keep it running smoothly without any excess weighing it down. This is where the just-in-time (JIT) inventory management approach comes in handy.
JIT is a system that allows you to order and receive inventory just in time for it to be used in production or sold to customers. The benefits of using JIT for inventory management at Amazon are numerous.
First, it allows you to reduce the amount of excess inventory that you need to store, which can save you money on storage costs.
Second, it helps you to avoid stockouts, which can be detrimental to your business.
With JIT, you can ensure that you always have enough inventory on hand to meet demand without overstocking.
2. Utilize safety stock and reorder point calculations.
Now it’s time to calculate safety stock and reorder points to ensure you have enough inventory to meet unexpected demand without overstocking.
To do this, you can use the Amazon inventory tracker to monitor your sales and determine the average daily sales rate. From there, you can calculate the safety stock level by multiplying the average daily sales rate by the lead time, or the time it takes for your supplier to deliver the goods.
This safety stock acts as a buffer to prevent stockouts during unexpected spikes in demand.
In addition to safety stock, you can also calculate the reorder point, which is the level at which you should place an order to replenish your stock.
To determine this, you can add the safety stock level to the average daily sales rate multiplied by the lead time. This ensures that you have enough inventory on hand to meet demand until the next shipment arrives.
3. Implement automated inventory management tools and software.
An inventory management system for Amazon can help you keep track of your inventory levels, sales, and orders in real-time. With an Amazon inventory tracker, you can set up automatic reorder points and safety stock levels, so you never run out of stock or overstock your inventory.
An inventory management system can also help you identify slow-moving products and adjust your inventory levels accordingly. By analyzing your sales data, you can make informed decisions about which products to restock and which ones to discontinue. This can help you optimize your inventory levels and reduce your storage costs.
With an automated inventory management system, you can save time, reduce errors, and improve your overall efficiency on Amazon.
4. Utilize Amazon’s Inventory Performance Index (IPI) for optimizing storage and replenishment.
The IPI measures your inventory levels, sales performance, and fulfillment efficiency to provide you with an overall performance score. This score is then used to determine how much storage space you are allotted in Amazon’s warehouses and the fees you will be charged for storing your products.
To improve your IPI score, consider using an inventory management system that integrates with Amazon’s warehouse management system. This will allow you to track your inventory levels in real-time and automate your replenishment strategy.
Additionally, consider adjusting your pricing and promotions to increase your sales velocity and reduce the amount of time your products sit in storage.
Effective Inventory Optimization Techniques
Optimization is the key to becoming more efficient in managing your inventory levels. Here are tried-and-tested techniques you can implement:
1. Implement ABC analysis for inventory classification.
You can classify your inventory using ABC analysis, which will help you identify which items are most important and require the most attention. This technique categorizes your inventory based on the value of each item, with A items being the most valuable and requiring the most attention, B items being moderately important, and C items being of lesser value and requiring minimal attention.
By using ABC analysis, you can prioritize which items need to be restocked first and which items can wait. This can help you reduce carrying costs and prevent stockouts, which can harm your sales and reputation.
ABC analysis can also help you identify which items are moving slowly and may need to be discounted or removed from your inventory altogether.
2. Leverage historical data and analytics for inventory planning.
Leveraging historical data and analytics is crucial for effective inventory planning. By analyzing past sales data, you can identify trends and patterns that can help you make informed decisions about your inventory levels.
Here are a few ways to leverage historical data and analytics for inventory planning on Amazon:
- Analyze sales trends
Look at your past sales data to identify which products are selling well and which ones are not. This will help you determine which products to stock up on and which ones to reduce or eliminate from your inventory.
- Forecast demand
Use your past sales data to forecast future demand. This will help you plan your inventory levels and ensure that you have enough stock on hand to meet customer demand.
- Identify seasonality
Analyze your sales data to identify any seasonal trends. For example, if you sell Christmas decorations, you’ll likely see a spike in sales during the holiday season. This information can help you plan your inventory levels and ensure that you have enough stock on hand during peak seasons.
3. Set up dynamic pricing strategies to manage inventory levels.
If you’re looking for a way to stay ahead of your competitors and boost your sales, dynamic pricing strategies could be the game-changer you need. Did you know that businesses that use dynamic pricing see an average increase in profits of 25%?
This strategy involves adjusting your prices based on factors such as demand, competition, and inventory levels. By setting up dynamic pricing rules, you can automatically adjust your prices in real-time to maximize your profits while ensuring that you don’t run out of stock.
One way to set up dynamic pricing is to use Amazon’s own pricing tools. Amazon offers tools such as the Automated Pricing tool and the Business Price tool, which can help you set up pricing strategies based on your inventory levels and your competitors’ prices.
Another way to set up dynamic pricing is to use third-party pricing tools such as RepricerExpress, which can help you automate your pricing strategy and adjust your prices based on your competitors’ prices. By using dynamic pricing strategies, you can stay competitive, maximize your profits, and ensure that you always have the right amount of inventory on hand.
4. Use Amazon’s inventory management features.
By utilizing features like FBA Inventory Age, Excess Inventory, and Stranded Inventory, you can better track and optimize your stock on Amazon.
· FBA Inventory Age
With FBA Inventory Age, you can monitor the age of your inventory and adjust your pricing or marketing strategies accordingly. This can help you avoid overstocking on products that aren’t selling as quickly as you anticipated.
· Excess Inventory
Excess Inventory allows you to identify products that aren’t selling as well as expected and take action to move them out of your inventory. By creating promotions or lowering prices, you can help clear out excess inventory and make room for products that are in high demand.
· Stranded Inventory
Stranded Inventory helps you identify any products that aren’t currently available for sale due to issues with Amazon’s fulfillment process. By resolving these issues, you can ensure that your entire inventory is available for purchase, ultimately improving your sales performance.
Best Practices for Managing Inventory on Amazon
By following the best practices for managing inventory levels consistently, you can defer potential risks like losing sales or negative customer feedback.
1. Regularly monitor and adjust inventory levels.
You need to keep a close eye on your stock and make sure you’re making timely adjustments to avoid any potential roadblocks to success. Regular monitoring and adjustment of inventory levels are essential to ensuring that you have enough products in stock to meet demand while also avoiding excess inventory that ties up cash and takes up valuable storage space.
2. Build relationships with suppliers and maintain open communication.
Now that you understand the importance of regularly monitoring and adjusting your inventory levels, it’s time to focus on building relationships with your suppliers.
Maintaining open communication with your suppliers can help you ensure that you have the right amount of inventory at all times.
One of the best ways to build relationships with your suppliers is to be transparent about your needs and goals. Let them know how much inventory you need when you need it, and what your long-term plans are. This will help them understand your business and how they can best support you.
Additionally, be sure to keep them updated on any changes in your inventory needs or sales projections. This will allow them to adjust their own production schedules and ensure that they have enough inventory to meet your needs.
3. Utilize Amazon’s recommended replenishment reports and notifications.
Here are some ways to make the most of these tools:
- Set up automated notifications
Amazon offers a variety of automated notifications that can be customized to your business needs, such as low inventory alerts and reorder reminders. By setting up these notifications, you can stay on top of your inventory levels without constantly checking your seller account.
- Use the recommended replenishment report
The recommended replenishment report provides a list of SKUs that are likely to run out of stock within the next 30 days based on sales data. By reviewing this report regularly, you can ensure that you have enough inventory on hand to meet demand.
- Analyze sales patterns
By analyzing your sales patterns, you can identify trends and adjust your inventory levels accordingly. For example, if you notice a spike in sales for a particular product during a certain time of year, you may want to increase your inventory levels leading up to that period.
- Take advantage of FBA programs
If you participate in Amazon’s FBA program, you can take advantage of features like Multi-Channel Fulfillment and Inventory Placement Service to help manage your inventory levels across multiple channels.
Understanding Amazon’s Inventory Management System and the factors affecting inventory levels is crucial in order to optimize your inventory and maximize your profits.
It’s all about finding the perfect balance that works for your business. By implementing effective inventory optimization techniques and following best practices for managing inventory on Amazon, you can ensure that your inventory is always in line with the demand.
And if you have challenges about staying on top of your inventory levels, we at Signalytics can help. Contact us to know more.