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.