As we all know, one of the most important Amazon goals is to maximize sales. For this reason, its algorithms are built in such a way to reward those sellers that excel at inventory management and are able to meet the demand at any point in time. Having products out of stock not only means that you lose potential revenue and customers, but also that your products will move to a worse position or even disappear from the Amazon Best Seller ranks. What does it take to have a robust inventory management strategy on Amazon? Below we will provide you with tips and tricks to excel at it and make of your Amazon business a solid and long lasting one.
1. Determine what your inventory minimum levels should be.
As in any sales channel or marketplace, sales fluctuate through time. It is then hard for a business to know exactly when a product should be restocked but at the same time it is also not ideal to wait for the product to go out of stock to place a replenishment order. Based on the type of product you sell, set instead a minimum inventory level that would allow you to still meet the demand and have enough time to stock up in inventory. This way you won’t miss out on potential sales and you will not have to overstock which, in most cases, represents an unnecessary extra cost.
2. Understand your inventory turnover rate.
Determining your inventory turnover rate basically consists in understanding how fast the inventory sells to avoid ordering too much or too little. In fact, ordering too much may incur in high costs to store the inventory or in spoilage. Ordering too little instead would represent a loss in business sales and unhappy customers.
Here is how to calculate your inventory turnover rate:
- Divide your COGS ($) by your average inventory for a given period of time.
- Divide 1 by that number and multiply it by the number of days that composes the period of time you picked. This final number will tell you in how many days you are selling your entire inventory.
Keeping in mind that Amazon requires sellers to turnover their inventory every 3 months, that number will help you in determining how many units you should be ordering every time you restock.
3. Understand your inventory lead time and supply chain process.
The inventory lead time is how long it takes from the moment you place an inventory order to when you actually receive it in your warehouse. It is important to know yours in order to keep it in mind whenever more inventory is needed.
On another note, the more steps and people are involved in the supply chain process the higher the probability of encountering obstacles along the way. It is then key to be familiar with your products’ supply chain to identify areas of improvement and fix bottlenecks whenever there is one.
4. Fine-tune your forecasting models as you get more data and prepare in advance for peaks in demand.
Sales forecasting is key to know how much you should order of what products for a given period. As for any forecast, it is hard to do it by only relying on internal data. For this reason, you should always be on the lookout for new Amazon and market insights, and integrate them to your forecasting models to be as much accurate as possible. In case you are on the hunt for ideas, here are some of the elements to consider in sales forecasting:
- Trends in your products’ market categories.
- General economic situation in the markets in which you are looking to sell.
- Your previous sales numbers (recent but also during the same period of time in the past).
- Your business’ average growth rate.
- Any upcoming marketing campaign or promotional activity.
Pay special attention to seasonal peaks and special holidays. During these times, demand tends to be higher than usual. It is a great opportunity to boost sales but it is also easy to not plan on time and be short on inventory. As a rule of thumb, your inventory order for seasonal peaks should not be placed later than two months before the beginning of the peak season. Keep in mind that also other sellers will increase their orders so suppliers may not be able to meet everyone’s demand. It goes without saying that maintaining good relationships with suppliers can only bring benefits to your business.
5. When possible, use Amazon’s FBA in order to streamline your inventory management.
FBA (fulfilled by Amazon) is a service that Amazon provides to sellers and covers storage, packaging and shipping of your products. Given that Amazon already provides this service to a myriad of sellers, it has an advanced and extremely performant supply chain process. As for any service, also this one comes for a fee but it may be worth it for your business to benefit from Amazon’s expertise and investments in the field. The only thing you would need to think of is replenishing the inventory provided to Amazon when needed. Moreover, through the Seller Central, Amazon will give you access to a set of tools to help you keep track of what is needed from you and identify areas of improvement.
Supply chain processes are complex and made of many little steps. However, the truth is that most of the obstacles one can encounter while managing inventory are preventable. If you haven’t done it yet, try optimizing your inventory management system with the insights provided above and do not hesitate in reaching out to the Gradient team for help. Given the importance of inventory management, we pay special attention to this topic and continuously build new features to help businesses maximize their sales on Amazon.