Running an Amazon business successfully requires effective inventory management. In doing so, you drastically reduce the likelihood that you will encounter two major loss factors: losing sales because of an out-of-stock situation and incurring storage charges due to overstocking.
It is particularly important for inventory management to be able to find the perfect balance between keeping too much and too little stock on hand. Once you have devised the right strategies, you will be able to determine the frequency with which you should reorder in order to keep inventory levels at optimum levels. To achieve that goal, let’s see what are optimal inventory levels you should maintain within the Amazon warehouse system to complete this task effectively.
Why is inventory management important?
Poor inventory management is no longer tolerated by customers. Online shoppers have high expectations regarding convenience and delivery speed. Generally, online shoppers are not interested in waiting around for products to be restocked. The majority of consumers would be frustrated if their orders did not arrive on time.
It could be that you frequently run out of inventory, and then you can’t sell to your customers, and they will end up buying from another company. As a result, each day that you cannot provide your customers with the product, their organic ranking grows, and yours declines. Conversely, if you overstock your inventory, you risk tying up your capital and needing to pay long-term storage fees, which will deter people from doing business with you. It is very easy to become overwhelmed with amazon warehouse management system if you overstock the products and your sales drop as a result.
Amazon sellers face a lot of challenges when it comes to inventory management. The delivery and manufacturing times of your supplier, customs delays, FBA storage fees and capacity, and your sell-through rate all influence the price.
It is not always easy to determine how much inventory to order when launching a new product on Amazon, considering current competition and demand. Moreover, your new listing will not have any reviews, and in the absence of social proof, your new listing will likely not perform as well as the competitive listings, at least not immediately. In due course, you will learn how quickly your inventory sells, allowing you to place orders to avoid overstocking or running out of inventory.
How Much Inventory Should I Store on Amazon?
Several aspects must be considered when determining how much inventory to stock and ship at Amazon. We will review a few of them here. Before selecting a strategy, it is important to identify your goals.
What are the goals of my company?
Do you have a plan for managing your cash flow?. Probably an aggressive approach would be appropriate if your focus is on revenue this year. Increasing quantities to market are critical, along with optimizing pricing and marketing to ensure that sales are sustained. Another is a lean approach where you assess the market and provide value for your customers.
Strategies for managing inventories
When you have a clear and concise understanding of your goals, it will be easier to determine whether you need a lean model or an aggressive model. The decision is yours because both models have their own set of potential risks and considerations. The question comes up; some may say that at Amazon, stocking too much or too little inventory has very specific consequences.
Overstocking can result in fees as a result.
It is common knowledge among Amazon sellers that Amazon charges a monthly fee for storing each item in its warehouse (by cubic foot). You will be charged for long-term storage fees if you have too much inventory at Amazon or if you accumulate too much inventory for whatever reason. In accordance with the terms of Amazon’s business model, companies will be charged a long-term storage fee (LTSF) of $6.90 per cubic foot per month for inventory stored in fulfillment centers for more than 365 days. The price for every unit will be $0.15, whichever is greater. When inventory sits in the warehouse for a long period of time without being sold, these fees compound, eroding the bottom line.
The Impact of Understocking on Sales and Marketing Costs
It is also important to note that when sellers run out of stock at Amazon, they also face the consequences. The last thing you would want to happen is that you run out of stock, which means you will lose the sale to competing sellers. In fact, running out of stock has an adverse impact on your business beyond the immediate. The term “out of stock” refers to a listing that has lost its ranking, but the product rank is directly related to how searchable and discoverable the product is. Thus, you will lose sales even after your inventory is replenished, which means that your marketing performance will go down.
What is the best quantity of inventory to purchase?
When it comes to managing inventory levels, balance is generally the most effective and safest approach. It is imperative to review historical sales data, preferably for the past 30-60 days, in order to determine an ideal inventory level. As further support for forecasts, if you have the data available, you may also reference year-over-year trending.
The product’s sales over multiple months can be predicted by looking at historical sales data, albeit it is not quite linear. Besides the seasonal trends, you also have to take into account the channel details, such as the rank, the seller saturation, and reviews from the channel. If you are launching a new product or product line and do not have historical sales information at your disposal, third-party sales estimators can provide you with good insight into where to begin.
Estimate the cost of carrying Amazon inventory
It is necessary to consider other costs your inventory will incur, in addition to storage fees, so that you are able to calculate your margin. In terms of inventory carrying costs, Amazon refers to all the costs associated with the management, shipment, and storage of inventory. These costs are in addition to the storage fees that have already been mentioned. Furthermore, the costs associated with the item itself, such as the pricing of the item, the manufacturing or acquiring costs, and the handling, shipping, and taxes associated with the item. In conclusion, it should be remembered that Amazon’s FBA fees should be deducted from the carrying costs of its inventory. Unlike Fulfillment by Amazon (FBA) fees, fulfillment by Amazon (FBA) fees are based on the dimensions and weight of each individual product.
What are some ways to prepare for supply chain disruptions?
The impact of supply chain disruptions on a seller’s ability to always buy enough but not too much can be very real, as we all learned in 2020. There are a number of potential disruptions to your business that you can anticipate, including major holidays in the countries where you are manufacturing your products. You can prepare for these events by planning ahead and preparing in advance. Additionally, you can also extend forecasts and stock up more than normal in case the lead time is longer than normal and fulfillment cannot be achieved on time.
What Are the Best Ways to Plan for Peak Seasons?
During peak seasons, there are usually increased sales across the board for all sellers. A peak season can be identified according to historical sales for a particular brand or product, but general market trends are based on common sense. Toys sell well during the Christmas holiday season; sunscreen sells well during the summer months. Make sure you make preparations as early as possible to ensure that you have enough inventory assigned for the high-volume season. The larger cash investment for allocations may be offset to a certain extent by negotiating discounts or improved payment terms.
If you’re developing your strategy, you’ll need to try out different combinations and figure out how much inventory to store on Amazon. Firstly, you should be aware that not all SKUs are equal, which is why you should take some time to determine what strategy will be most effective for you Read More