Inventory management is a critical task for a strong Amazon presence. Stable inventory levels can improve profitability, increase customer retention, help maintain high Best Seller Rank, and organic keyword rankings.
If items are often out of stock due to poor inventory management, there are a wide variety of implications, including lost sales. On the flip side, if your brand has excess stock, you could incur costly long-term storage fees each month. Determining the right amount of inventory levels for your brand is a balancing act and is key to a profitable Amazon business. Here are some considerations Amazon Sellers should keep in mind for strong inventory management.
Avoid Going Out of Stock
In addition to losing sales, when items go out of stock, it can hurt your Best Seller Rank and organic keyword ranking. Plus, lost sales to competitors can help increase their rankings. Each day your items are not appearing in search results because of stock issues, you are further and further behind.
Although this can be stressful, you can be proactive to avoid inventory management issues becoming a reality for your brand. For example, if your items are low on inventory and a shipment hasn’t yet arrived at the Amazon warehouse, consider pausing or scaling back on Amazon Advertising. Rankings may still be affected, but not as drastically as if your item goes out of stock.
While brands can try their best to plan for everything, sometimes things out of your control happen and items go out of stock. Whether it’s a storm slowing down shipments or warehouse delays, having backup units on hand can help maintain healthy stock levels. This means accounting for extra units in your own warehouse, third-party storage, or fulfillment center. With backup units available, in case of a supply chain disruption, you’re able to main FBA stock or fulfill orders using FBM.
A caveat to storing additional units is to ensure you’ve accurately predicted the demand for your product and can afford to order and store them. If your brand doesn’t have the capital or safe storage space, ordering backup stock is not recommended.
Common Overstock Issues
With the above in mind, it’s important to remember having excess inventory can also be damaging to your business, especially for Sellers. If you’re using FBA, keep a close eye on your IPI (Inventory performance index) score. The IPI is a measure of efficient inventory management and replenishment. It is based on:
- How well you replenish popular items
- Maintain healthy inventory levels
- Fix listing problems
At Code3 we have found our clients with high IPI scores have a lot of benefits with storage costs. An IPI score above 400 lowers storage costs and offers additional storage capacity in Amazon fulfillment centers, which can increase profitability.
If your brand has over 90 days of supply, and/or at least one unit aged over 90 days with FBA, Amazon considers it excess inventory. Excess inventory can negatively impact your IPI and can incur monthly and long-term storage fees.
The age of each seller’s storage inventory is assessed on the 15th of each month, and long-term storage fees are incurred after an item has been stored for more than a year. An item’s age is calculated from the day it arrives at the Amazon warehouse. According to Amazon, “Inventory that has been in a fulfillment center for more than 365 days will be charged a monthly long-term storage fee of $6.90 per cubic foot, or $.015 per unit, whichever is greater.”
Another type of issue that can plague a brand is Stranded Inventory. This is when inventory stored in the Amazon warehouse is no longer connected to an active listing. Brands will still incur monthly storage fees and long-term storage fees regardless of whether they can sell the products again eventually. Amazon offers a tool that lists stranded inventory within the Inventory Dashboard, but there are no alerts, so brands should be checking this tool often to avoid Stranded Inventory.
There are a variety of other tools available in Seller Central that can help brands avoid excess inventory.
- Restock Inventory Tool - offers data on how many days of supply you have left for each product as well as recommended replenishment amount
- Manage Excess Inventory Tool - includes listings that may have excess inventory
- FBA Inventory Age Tool - data on how long your inventory has been stored in FBA and metrics such as estimated storage costs
- Manage FBA Returns Tool - where you can manage all FBA returns and see metrics including return date, customer refund date, date return received, status, and more
Additionally, some tips that can help your brand sell through excess inventory quickly include:
- Promotions or a lowered price - utilize coupons, discounted prices, and more.
- Increase Amazon Advertising - take a look at your Amazon Advertising strategy for products with excess inventory. Increasing keywords or budget, especially along with a promotion, may help products move quickly.
- Removal Order - if you’re able to store the inventory somewhere else, you can create a removal order to have the items sent to you before incurring large storage fees. Make sure the cost of storing items elsewhere is less than the storage fees you may receive from Amazon.
- Liquidate or Donate - likely as a last resort, brands can donate stale inventory to charitable organizations or non-profits, or liquidate remaining inventory in bulk. Liquidation can allow brands to recoup some capital, and when donating, brands are able to write off the donated inventory on year-end taxes to make up for the loss.
Strong inventory management is all about balance. Careful planning and monitoring are key to minimizing inventory issues. At Code3, we recommend our clients have someone on their team who is very involved with the day-to-day inventory management. Could you use some strategic help with inventory management or other e-commerce tasks? Contact us today.
