6 Ways to Improve Your FBA Amazon Inventory Management
Profitability as an Amazon FBA seller is based on several factors, one of which is inventory management. Understanding the details of your FBA inventory, from where it’s being sourced to how it’s being delivered, will give you insight into how to improve your profit margins over time.
What Is Amazon's Inventory Management?
As defined by Amazon, inventory management is the Amazon seller’s process of tracking and storing products to meet customer demand quickly and efficiently. Amazon FBA inventory management includes knowing the amount and type of items you have available, as well as predictions of inventory you plan to sell in the future.
Poor Amazon inventory management is costly to your e-commerce business. It may mean you have to list products as “out-of-stock”, which can lead customers to look for availability at your competitors. It can also result in dead stock, higher storage fees, and spoiled products, depending on how long you have to wait for shipments.
Even the smallest hiccup in your inventory management strategy can delay orders and cause you to miss out on potential sales, all of which limits your profitability.
Improving Your Amazon Inventory Management Techniques
As an Amazon seller, there’s a wide range of tools to help guide you. Below we outline a few tips and tools to improve your Amazon inventory management process, and in turn increase sales, maintain customer satisfaction, and grow your business.
#1: Establish Solid Supplier Relationships
Researching and establishing reliable supplier relationships is crucial as an FBA seller. When selecting which supplier you’re going to be working with, check for credentials, credibility, and costs. A good supplier provides quality products in a timely manner on a consistent basis.
Once you’ve found a supplier that meets these terms, maintain a solid relationship by treating them with respect, paying bills on time, and communicating frequently to make sure everyone is aligned with expectations. Finding a steady operational flow when scheduling supplier shipments will support customer demand as needed, without being left with too much inventory sitting in storage.
#2: Monitor Sell-Through Rate
The sell-through rate is measured by the amount of inventory sold from your store in a given period compared to the amount of inventory received during the same period. This is an important metric to monitor when it comes to establishing accurate Amazon inventory management and anticipating customer demand.
For example, if you review your sell-through rate annually, you can determine if sales spike in certain months and ensure you have adequate stock for those months. Additionally, knowing how much you typically sell on a month-to-month or quarter-to-quarter basis helps with inventory forecasting, allowing you to prevent overstocking or understocking. By having accurate inventory forecasting you can ensure you are maintaining the best margins possible.
#3: Restock Popular Items Regularly
Determine restock timelines for each item you sell, as some products may sell out more quickly than others. Use your inventory data to decide the right time to restock items vs. setting an automated date every month to order products that you may not yet need.
Anytime your store shows an “out of stock” message it represents a missed potential sale. If this is a recurring situation for your store, it can dissuade customers from buying from you again or cause them to research competitive brands that are more consistent. On the other hand, too much inventory affects your profit margins and can lead to excess storage fees if products are sitting too long in the warehouse.
#4: Move Out Aging Inventory
Overstocked items that aren’t selling also lead to lost profits. Not only do you lose on the resale profitability, but you also incur storage costs of those items taking up space. To avoid aging stock, consider running a promotion to sell as much of the overstocked inventory as possible.
The Amazon FBA Restock Tool is a free tool found in the Restock Inventory section of Seller Central. It helps increase conversions and sales by offering more one-day and same-day shipping opportunities. It can also help minimize the risk of stranded inventory and protect your Seller rank, which will affect how visible you are across the site.
The restock tool considers sales history, demand forecast, seasonality, and your store’s inputs to determine when to send more inventory. It’ll also show your estimated ship days and recommended replenishment quantities. This information can help you decide what products are worth selling and ones that need to be eliminated for good.
#5: Optimize Amazon Inventory Management Tools
In addition to the Amazon FBA Restock Tool, some other helpful tools and reports include:
- Inventory Performance Index (IPI). This rating is found on your Inventory Performance Dashboard and highlights factors affecting your Amazon inventory management. The lower the IPI rating, the more likely excess inventory fees and limitations in shipping more inventory may apply.
- Inventory Age Report. This data reveals how well you’re balancing your inventory rate with how much is being sold. In short, this downloadable report helps identify how long an item in your inventory is spending in fulfillment centers before being sold. Being aware of this can help you identify your restock rate, and to see what storage fees you are paying for by having this inventory.
- Surplus Inventory Reports. When a unit ages over 90 days, it’s considered excess inventory, and Amazon tools will automatically recommend ways to get a better inventory ROI, such as reducing the price. When you have a surplus of inventory, you can create a sale, advertise the listing, or create a product listing removal.
Using an inventory management service allows you to automate the process that handles maintaining consistent inventory levels and preventing spoiled or aged goods. FBA and other third-party providers can also help you manage your inventory at scale, which saves on costs and allows you to offer promotions or incentives to customers, like free shipping or discounted offers.
As your customer base and inventory grow, the more difficult it will be to track all shipments manually. The inventory management system and schedule you may have used when starting out will no longer be applicable. Using a data-driven and machine learning system like the Amazon inventory management platform will ultimately save time, cost, and customers.
#6: Implement Third-Party Amazon Inventory Management Tools
Amazon’s Seller platform is robust, but many times, sellers decide to integrate additional third-party tools to track and manage inventory. Whatever inventory management software you decide to you use, make sure it:
- Integrates with all your online sales channels
- Provides recommendations for stock replenishment
- Tracks and provides reporting on product types and quantities
- Tracks the number of days items have been stored in the warehouse
Popular Amazon inventory management tools include:
- Stitch Labs
When deciding which tool is best for you, sign up for a free trial period to test each tool out and get familiar with the dashboard. Make sure it meets the requirements of your business and is cost-effective for how often you’ll be using the tool. Compare the benefits and limitations of each to decide on which will best complement the reports and tools already available through your FBA Seller platform.
Turning Your Profit Into a Payout
To get your Amazon business to a high level of profitability, it starts with implementing the basics of minimizing costs and maximizing profits through diligent inventory management. At Forum Brands, we reward passionate, independent sellers by offering fast and efficient payouts when they’re ready to sell their e-commerce businesses.
We look for sellers who make 70% or more of sales through Amazon FBA and have demonstrated financial success of at least $200K in net profit in the last year. By taking the proper steps to improve your Amazon inventory management over time, you’re more likely to see profitability that can meet this criteria.
Taking advantage of the tools available through your FBA dashboard and reviewing your data on a regular basis is crucial when growing your business to a point of possibly selling in the future.
Grasping the ins and outs of inventory management can become rapidly overwhelming. Continue to our blogs Best Tips for Sourcing FBA Inventory and A Guide on How to Sell on Amazon Without Inventory to give you insight on how to get a better handle on your inventory levels.
5 Best Tips for Sourcing FBA Inventory
Sourcing inventory for an Amazon FBA business is a critical component of any successful operation. It involves several steps and requires FBA sellers to make important decisions. Specifically, sellers must select their sourcing method, find reliable suppliers, and research product trends.
We’ve distilled these high-priority decisions into a list of five tips for sourcing FBA inventory to help you build your Amazon business and maximize profitability.
#1: Determine the Method of Sourcing
There are several sourcing methods an Amazon FBA business owner can choose from. Some prefer to rely on one strategy, while others use a mix of several different methods.
Knowing how you want to source inventory will determine where you will source items. Three of the most common methods of sourcing FBA inventory are:
- Retail Arbitrage
- Handmade Products
The retail arbitrage method is best suited for an early-stage Amazon seller that is just beginning to build their brand and has not yet established a large customer base. Tactical arbitrage allows you to purchase highly discounted retail products, which can then be resold on Amazon’s platform.
This strategy can be time-consuming depending on the items being sourced, but requires a low level of investment, as the items are bought at a steep discount, and then resold for a profit. Retail arbitrage may involve exploring clearance and closeout sales online, as well as searching for products at auctions or in-person thrift stores.
Once you develop a plan for bargain hunting and find the best quality products, retail arbitrage can be a successful method for sourcing FBA inventory. It gives you an idea of trending products, competitive pricing models, and what items sell best. An additional tip is to use Amazon pricing apps. These apps will guide you in pricing resale products based on buyer demand and average selling price, which will help you stay competitive.
Sourcing FBA inventory through the wholesale channel is similar to retail arbitrage in that you are reselling goods made by other companies. However, buying wholesale often means sourcing inventory in larger volumes since there is typically a minimum purchase order for products.
Sellers who take the wholesale route often source products via online marketplaces, such as Alibaba and Aliexpress, although wholesale purchases can be made in-person as well. Buying in bulk can be advantageous if you are fulfilling inventory for a highly requested product. It can also be beneficial when testing the popularity of a few different products to see which will be most profitable.
Keep in mind, though, if you buy a bulk shipment of a product that does not sell well, you are at risk of holding a surplus, which leads to high storage fees and potentially lower profit margins.
Creating your own products or working with someone who does is another sourcing option to explore. While this method is growing in popularity among customers and can be a profitable option, it takes time to establish credibility on Amazon and among customers.
Using this sourcing method requires applying to Amazon’s Handmade section, which has stringent requirements. It does not allow you to sell in bulk as with retail arbitrage or wholesale methods. You can only list and sell up to 40 items per month with a free Amazon FBA account. However, this method may be used in combination with one of the other options to diversify your product offerings.
#2: Find Reliable Suppliers
Supplier reliability is essential. When sourcing FBA inventory, you must find a supplier that delivers quality products in a timely manner. Many sellers on the FBA platform use suppliers in China due to the benefit of low cost manufacturing. However, cheaper doesn’t always mean better. Certain products, such as pet care products and vitamins and supplements, are generally viewed as more reliable when manufactured in the U.S. given the higher restrictions and vetting processes.
Online marketplaces and trade shows also allow you to work directly with suppliers and ensure you have plenty of choices when it comes to product availability. It’s also beneficial to research regions closer to the U.S., such as Mexico. Suppliers within close proximity to the U.S. may have higher quality, quicker delivery time, and fewer restrictions than sourcing FBA inventory from China.
Regardless of where your supplier is located, make sure to perform your due diligence. You should validate the legitimacy of the business and ensure it has all the necessary business certifications in place. Also, ask to see a product prototype to test the quality for yourself. This prevents you from buying a bulk order of products that may not meet your standards. Further, seeing the product for yourself may help you identify whether the product has any potential patent or trademark infringement risk. Questions to consider when searching for reliable suppliers are:
- What is the ROI when reselling the items?
- What is the competition for this product type like?
- Are these products approved to sell?
#3: Diversify Where to Source Products
Supplier diversity is just as important as diversifying your product offerings. As you begin your research, reach out to multiple suppliers to assess costs, product quality, and logistical advantages. Determine which options best fit your needs and have more than one choice available, as unforeseen circumstances can cause delays in your primary supplier.
For example, Amazon FBA sellers who rely on a single supplier in China may face shipment delays and breakdowns in quality control based on unexpected disruptions in the supply chain. A supplier could also become strained due to rising demand and may not be able to meet the same quality standards. Having another vetted option that can provide the same high-quality products is best to have on standby if your first option falls through.
#4: Calculate Logistics Costs and Timelines
Another tip when sourcing FBA inventory is considering how the supplier will work into your operating timeline. How long will it take to fulfill orders? How long does it take for delivery? Is the supplier always in stock when items are needed?
Also, consider how these shipping costs will affect your profitability. Shipping items from another country will increase freight and shipping charges, which may not be the best option based on the margins you want to achieve. Additionally, sourcing items from another country requires time to clear customs and may result in damaged or lost goods en route.
Though there are definitely international supplier partners that have proven to be consistent, you will want to perform your due diligence on the company beforehand and continue to track timeliness and product quality. Since you won’t have oversight over the products as they’re shipped directly to the fulfillment center, being able to track shipments from your suppliers and integrating information using your Amazon inventory management system is key.
#5: Research Product Trends
Continuous research around Amazon product trends is necessary to anticipate future sourcing needs. If there are products that spontaneously spike in sales, it’s likely that competition will be higher, which can impact pricing, availability, and timeline of receiving those items. Having your inventory closely aligned with best selling products will limit any potential surplus of unsold items. This can help minimize excessive costs of storing, packaging, and shipping the goods.
The results of your product research may change your preferred inventory sourcing method. As you grow your business and track profitability, you may decide to discontinue certain items or expand your inventory to offer new merchandise. You may switch suppliers or broaden your selection. Keep in mind that what works for you when first starting your FBA business may not work as well once your company starts to grow.
Growing Your Amazon FBA Business
Properly managing and sourcing FBA inventory plays an important role in the overall success of your brand. It all begins with how and where you source your products. Choosing a method that works for you and finding reliable suppliers are two of the most significant decisions to make when meeting customer demand.
Use these tips discussed in this article to grow and scale your FBA business. At some point, you may want to sell your business and pursue a new venture or cash out your profits. At Forum Brands, we look for Amazon FBA sellers who have grown strong brands selling everyday products in categories that will be in demand for years to come. Our criteria also include a majority of sales conducted through Amazon FBA with a proven track record of financial success, with at least $200K in net profit in the past year.
Once you’ve reached a point where you’re in a position to sell, we are here to offer passionate sellers a chance to cash out years of profits in one day based on the e-commerce valuation of the brand. As Amazon experts ourselves, we understand the hard work and dedication it goes into building a business to this level of success and want to provide a payout that’s fast, efficient, and worthy of your success.
If you’re searching for more useful information regarding how to successfully run an Amazon FBA business, continue to our blog on How to Sell on Amazon Without Inventory.