How to Manage Amazon FBA Inventory All on Your Own
Amazon FBA is a great way to build an online business make some good money. But, it’s not as easy as it seems. Both new and experienced Amazon FBA sellers make a crucial mistake when it comes to their business: mismanaging or not understanding their inventory.
There are many factors that come into play when talking about FBA inventory management. Order volume, cash flow, manufacturer relations, sales forecasting, and so much more. Nearly half of small businesses don’t do well with inventory management.
It can seem overwhelming to understand everything going on, but with the right strategies in place—you can optimize the whole process and make more profit.
In this article, we’ll go over how to manage Amazon FBA inventory all on your own. Read on to learn how you can improve your profit margins and be a more prominent seller on Amazon.
Why Amazon Inventory Management is Important
Amazon could be an intensely competitive business to be in at times. Inventory management is crucial. Here are some reasons that FBA inventory management is important on the platform:
- Outperform your competitors. If you regularly have enough stock to meet demand, then consumers are going to trust you and your product. If you’re sold out, they’re going to shop with a competitor.
- Reduce storage fees and inventory costs. You could potentially be throwing away money if you have too much inventory at Amazon’s facilities. Fees add up on inventory that just sits there.
- Rank higher on Amazon. Amazon favors sellers with a reliable inventory.
Common Inventory Management Issues
Almost every seller on Amazon is bound to run into inventory management issues, it’s almost inevitable. What should also be inevitable is being prepared for these issues.
Let’s go over some of the more common issues that FBA sellers face:
Running out of inventory
Being out of stock can not only hurt your short-term profits but your long-term performance on Amazon’s recommendations and search engine.
There are plenty of ways to avoid running out of inventory.
You can try ramping up production from your manufacturers if you can catch the problem on time. If this isn’t possible, then it’s not the end of the world.
This doesn’t sound pretty, but you might want to cut down on advertising so that your products reach fewer people. While it sounds counterintuitive, it’s actually better for your performance long-term. You want to avoid running out of stock like it’s the plague. Amazon penalizes sellers who don’t consistently have some inventory.
The best way to avoid this problem is by monitoring sales patterns and predicting when demand is going to go up. You can then let your manufacturer know that you want to increase production for a certain time period.
While not as hurtful to your overall performance as running out of stock, overstocking could still cost you a lot of money.
Amazon charges a fee for keeping your products in their facilities, and those products take up space (obviously). If a seller can’t push out enough products and they just sit in Amazon’s facilities, then that’s going to hurt profit margins. Amazon considers products that have been in their facility for more than 90 days “excess inventory”.
4 Tips to Efficiently Manage Inventory
Now that you why inventory management is important and some of the more common inventory management issues, we can go over strategies for optimization.
1. Find a Great Supplier
Suppliers are a huge part of your success on Amazon. It’s important to find a few candidates. Do your research on them—check for credentials, previous work, and costs, consider visiting the facility if you have the means to do so.
Once you pick a supplier, make sure you establish and maintain a healthy relationship. Make your expectations clear but also ensure that you meet theirs. Pay your bills on time, don’t request unreasonable production, and communicate.
The longer you work with a supplier, the better. You’ll get a better understanding of lead times, production, and more mutual respect.
2. Always maintain some stock
It’s important to always maintain some stock in Amazon’s facilities. It’s good to keep around 60-90 days of stock. This means that you should always have enough stock to sell for around 60-90 days before you run out.
You should also monitor your sell-through rate. Your sell-through rate is measured by the amount of inventory sold compared to the amount of inventory received during the same period. You should monitor your rate on a quarterly basis. Amazon’s sell-through rate is measured by 90 days, and a good general target is around 7.
However, you should also monitor your annual sell-through rate. This can help you see if sales fluctuate during certain time periods. If you know when sales fluctuate then you can let your supplier know when to turn up or dial down production.
Remember, overstocking can hurt your profit margins. That’s why it’s perfectly okay to cut back on production when necessary.
3. Monitor lead times - Better restocking
Lead times are how long it takes for Amazon’s facilities to receive an order from the supplier once it’s been ordered.
Understanding your lead times can help you keep your inventory stock at the perfect level. If you know when, where, what, who, and how—then if something goes wrong you can identify what happened, why, and how to fix it.
It’s always a good idea to have some sort of backup plan in case something happens. For example, renting out a cheap storage facility to keep a month’s worth of stock. Or having a local supplier ready to pump out some product (even if it’s a bit pricier, it’s just a temporary solution).
4. Understand Amazon’s numbers
If you’re making money on Amazon, then so are they. They want you to succeed, so they provide you with some helpful tools and insights.
- Inventory Performance Index (IPI). You want to keep this number up. The lower the IPI rating, you have to pay more excess inventory fees and your access to space in Amazon’s facilities gets cut. Run or cut back on ad campaigns to keep your inventory at a healthy level.
- Inventory Age Report. This data reveals how well much you’re selling compared to how much inventory there is. You can use this data to know how long a product is sitting in Amazon’s storage. Try to get a product in and out within 90 days.
- Surplus Inventory Reports. These reports let you know when inventory’s been in storage for more than 90 days. You can run ad campaigns, apply discounts, or sell products in bulk. If all goes downhill, then you can simply donate the excess product and use the donation as a tax write-off to make up for lost profit.
Need Help Managing Amazon FBA Inventory? Let ShipmentBot Help!
Let’s be honest, managing Amazon FBA inventory could be a lot to handle. Sitting down to look at reports, crunching numbers, and sending them out. You don’t have to go at it alone, though.
ShipmentBot is a software that can automate repetitive Amazon tasks like looking through reports and even suggesting how much inventory you should order. ShipmentBot accounts for sales history, how much inventory you have in stock, and even forecasts sales fluctuations.
Getting inventory management down is definitely tricky, but not impossible. With the right dedication, proper inventory management can take your online business to the next level.