Inventory management—those words don’t really get your heart racing, do they? Nevertheless, keeping tabs on your inventory is something every business owner must do. It’s especially critical on Amazon, where unfortunately timed stock-outs can destroy a product’s momentum and create huge setbacks for your business.
Here are our four quick tips for staying on top of Amazon inventory management.
Note: This article assumes that you use FBA for most or all of your products.
Amazon does give you a certain number of tools to manage your inventory—they provide an inventory summary on your dashboard and send you some low-stock alerts.
However, Amazon is assuming that you either have a supply of your product in your own warehouse or that your supplier is close enough for a sub-one-month order turnaround. Both of these things are increasingly uncommon as more and more sellers switch to FBA and rely on overseas suppliers.
Despite this, Amazon will still only send you low-stock alerts a few weeks out at most. This is not enough warning for most sellers.
In order to stay on top of your inventory, you’re going to have to be proactive. Your goal: be able to safely ignore almost every Amazon low-stock notification.
How do you do this? By understanding your own sales velocity and supply cycle better than Amazon does.
Proactively send out resupply orders based on your knowledge of your suppliers’ manufacturing and shipping times. Being ahead of the game helps a lot here—unexpected manufacturing delays can lead to disastrous stock-outs.
If your suppliers are based in Asia, here are some numbers for perspective:
You should always plan for the worst-case scenario. For Asian manufacturing, this means forecasting a supply cycle at least four months long; ideally, you’d plan for six months.
At the end of all this, disregarding emergencies, you should be sitting comfortably when the Amazon low stock alerts come in, knowing that your order placed months ago is coming in soon.
One size does not fit all when it comes to inventory management.
Yes, consolidated orders are easier and save costs on shipping—but ease and efficiency aren’t worth running out of stock on a hot-selling product. You likely have a somewhat diverse portfolio of products, all with different relative market shares and sales velocities, and your inventory management should reflect that.
Take a careful look at the sales data for each and every one of your products. Naturally, you should resupply more often for your hottest sellers and reduce order frequency for underperforming products while you figure out what’s wrong. But individual management goes beyond that.
Seasonal purchasing waves are a huge consideration—the holiday season often brings greatly increased sales, and you need to have the inventory to back it up so that you don’t miss out on the momentum. Be sure to add extra orders around September and October to make sure you inventory health is shipshape before the demand spikes hit.
Additionally, while it’s good to automate sales cycles for many products once you have an idea of their average demand, some inventory decisions require a human touch.
Have a feeling that one of your products is going to be a hit? A surprise spike in positive reviews come through? Use your best judgment to take the risk and place a good-sized purchase order. If the product does take off, you’ll have the inventory to ride the sales wave all the way to the top of the rankings. This can be what takes your company to the next level—one big success is all you need. If you play it too safe, runaway sales will soon turn into unsatisfied customers and ranking loss as out-of-stock messages plague your product page.
Obviously, the risk can backfire if you overestimate your product or the stars don’t align in some other way. You can end up with way too much inventory and have to deal with cleaning it up, either through discounts, bundles, or giveaways. Use your best judgment and make sure you fully believe in your product before putting the PO behind it. However, if your Amazon business is stuck in a rut, taking that one big risk might be what makes the difference.
Promotions are an excellent way to generate reviews, rankings, and attention to your product listings, and we highly recommend them as a way to grow your Amazon business. However, you need to approach them with a touch of caution, especially in terms of your inventory.
Successful promotions are great—promotions that are too successful begin to cause problems. If you aren’t careful, runaway promotions can cut into your margins more than expected; more importantly, they can completely clean out your inventory if you’re not ready. No inventory means the ranking increase from the promotion is null—it doesn't matter if people can see it if they can't buy it. As a result, you’ll quickly drop back into obscurity, with an extra deficit on your hands as a bonus.
Here are the steps to take to avoid that problem.
In Seller Central, create a protected reserve of your supply by placing a fulfillment order to yourself. Once you input an address and a number of units, hit “Continue,” then select the option “Hold this inventory for up to two weeks.”
Now that you have your reserved inventory, run the promotion and watch sales very carefully. When orders start to reach a velocity threatening a stock-out, end the promotion.
Cancel the fulfillment order on hold, and the inventory will immediately become active again. This should give you enough of a buffer until your normal supply cycle kicks back in.
Additionally, if you really need to pull the emergency brake on a promotion (Amazon indicates that ending a promotion can sometimes take a few hours), you can instead edit the promotion and change the valid discount code. Any subsequent attempts to redeem the original code will fail, even if Amazon hasn’t formally taken the promotion down yet.
If you use this method, be sure to take down references to the promotion, or at least phrase your promotion as “good until X date or while promotional materials last” to avoid complaints about the sudden end of the promotion when there appears to be stock left.
There is something to be said for the efficiency of a just-in-time inventory management system, and stagnant inventory can rack up huge costs that aren’t giving you any return.
However, keeping your inventory at the exact levels needed requires acute control of inventory resupplying and detailed knowledge of periods of increased demand—both of which are hard to come by as an Amazon seller.
As discussed above, the turnaround time for Asian manufacturing, one of the most common options for private label sellers, can take months. Even with rush air shipping, delays from equipment breakdowns or other emergencies can add weeks to your fulfillment time. Plus, a product’s sales can shoot up unexpectedly after great reviews—if you don’t have enough stock, you’ll lose all momentum very quickly.
Thanks to all this, it’s often worth it to set aside some of your budget to provide a little extra supply when needed. This can range from emergency drayage or storage costs to reserving space in your own warehouse. There are plenty of unexpected situations that will call for additional inventory, and you need to be ready for them to succeed on Amazon.
Still, measure this advice against your best judgment. Ask yourself how long your business can afford to hold extra inventory, and make sure the amount isn’t back-breaking. Pay close attention to the data as well. If you aren’t ever using your reserve stock for a product that doesn’t look like it will take off any time soon, get rid of some of it.
If you’re ever unsure, however, our best advice is to err on the side of extra. The Amazon marketplace is highly unpredictable due to the exponential effect of ranking changes, and it pays to have backup—when the day comes that you need it, you’ll be happy you have it.
Inventory management on Amazon is all about momentum—sales lead to more sales in an exponential manner as your ranking increases. If your inventory can’t keep up with this growth, the sales grind to a halt along with the growth. Buyers intrigued by your boosted ranking will leave in disappointment to the out-of-stock message, and you’ll quickly lose the rankings you gained.
If you’re on top of your inventory, any sales jump can elevate your business to the next level. If you’re caught off guard, it can lead to huge losses—especially if you make a large order which arrives only after the sales have completely stopped, and you’re left sitting on a massive amount of stagnant inventory with no buyers to back it up.
Inventory management is a tricky subject. Short of seeing the future, there’s no way to get everything perfect all the time. Hopefully, though, with these tips, we’ve brought you a bit closer to having your own crystal ball—or at least the next best thing.