Inventory management has been an important part of business and daily life since the beginning of time. The ancient Greeks used to store inventory and monitor the flow of valuable goods by inscribing information in stone.
A few centuries later, we find accounts of merchants traversing along the Silk Road and overcoming transnational barriers to inventory storage and supply.
Today, we have made significant progress in terms of how we manage and store our assets. At the same time, we still face many (of the same) challenges: efficient sourcing, storing, and the selling of inventory.
For Amazon sellers failing to devise a holistic and evergreen inventory management strategy could negatively affect your seller performance and ranking.
To prevent any inventory hiccups (or bombs) along the way, we are going to take you through:
We will also round off this post by answering a few questions Amazon sellers commonly ask. Ready? Let’s dive straight in!
Every action an Amazon seller takes (advertising, analyzing, or researching), is done with the intention of increasing sales. The availability and accessibility of inventory, therefore, are crucial components of success in any online marketplace.
IBM (International Business Machines) defines inventory management as:
“...the tracking of inventory from manufacturers to warehouses and from these facilities to a point of sale”
An inventory management strategy refers to a set of processes designed to facilitate the movement of your products from the manufacturing hub all the way to the end customer. The strategy has to be formulated keeping in mind the marketplace dynamics as well as the fulfillment method.
The process is—in large part—automated and outsourced for FBA sellers. This makes selling on Amazon much easier, albeit at a cost.
Inventory management is important because it lets you order and store the right amount of products to fulfill your customers’ needs. Overstocking results in tied-up capital and increases storage costs/fees whereas keeping minimal stock increases the probability of stockouts, plummeting sales, and tons of bad press!
Implementing an effective Amazon inventory management strategy has several competitive advantages. Some of these include:
Regardless of whether you are a small-time seller barely managing 20 sales per month or a big fish shipping out tens of thousands of products—the importance of creating and implementing an effective Amazon inventory management strategy cannot be understated.
Amazon spends billions of dollars each year to ensure it offers the best possible shopping experience on the internet. It continually refines its artificial intelligence systems to provide for excellent search results, adds more product categories to its already massive catalogs, and keeps expanding into foreign marketplaces.
In short, it has complete control over its operations. The one thing Amazon does not have full control over is seller performance. To ensure third-party sellers live up to its high expectations, Amazon does not hesitate to penalize those that underperform. And poor inventory management is certainly one way of invoking Amazon’s wrath.
Amazon has an Inventory Performance Index (IPI) in place to assess how well sellers manage their inventory. Simply put, the IPI measures how productive and efficient sellers are in managing their inventory.
Multiple factors influence the IPI score. The main ones are:
An IPI score ranges from 0 to 1000. A cumulative score of 700 and above is considered excellent, 450 and above is considered good. However, a score below 350 is poor. The penalty of falling below the 350 point mark results in increased storage cost and reduced storage limits.
Running out of stock will worsen your Best Seller Rank (otherwise known as sales rank). It’s quite challenging to run advertising campaigns and slowly climb through ranks—all that effort can go to waste due to poor inventory management.
Worse yet, your brand image takes a hit: Customers won’t wait around for you to sort out your inventory management issues--they will simply switch to a competitor.
Product listings with excellent copy and high-quality images play a key role in conversions. However, customer reviews are equally, if not more, effective in helping customers to trust that your product is the right one for them. Once an SKU goes Out of Stock, that’s it. No more positive reviews until you fix the issue.
Not only does this reflect negatively on you as a seller, but it also gives your competition more time to edge closer to the number one spot.
Note: Zonguru has a nifty Review Automator tool that reminds buyers to leave behind a review for your product. Plus, it’s 100% in line with Amazon’s ToS!
Conversations about improving the supply chain these days tend to focus mainly on reducing shipping times and driving down costs. Overly focusing on these two aspects may cause sellers to overlook or undervalue other fundamental aspects of inventory management: how products are shipped and transported to warehouses.
For instance, if you are selling a product made out of glass or another brittle substance, it can be easy to forget the extra care and packaging expenses needed to prevent breakages during shipping. The same can be said for food or temperature-sensitive items.
Not communicating these concerns with a reliable freight forwarder might put your Amazon business at a loss before making a single sale!
Pro tip: Do you want to avoid the negative consequences of poor inventory management? Choose Zonguru’s My Products tool as your aide. This tool accurately keeps track of inventory and lets you know when to reorder based on past shipping times. Oh, and it also keeps you on top of your business’ finances!
With the importance of inventory management now clear, it’s time to create a holistic inventory management strategy. Your goal should be to refine and improve upon your supply chain by implementing these steps.
Product listings might not seem to be a part of inventory management, but Amazon says otherwise. Your product listing or detail page is your virtual storefront. Optimizing all aspects of a listing is necessary to ensure you:
To optimize your product listings, you should:
Finally, your listings should accurately reflect your offerings. Poor quality content will not garner any favors with Amazon and will most likely result in reduced sales and BSR.
Note: Perfect your Amazon product listings by checking out what our experts have to say!
Inventory turnover refers to the rate at which your products are sold within a given period. Knowing this bit of information is crucial because it gives you a good idea of when and by how much you should restock your inventory.
Order too much inventory and your IPI score will fall (recall the Excess Inventory metric), order too less and you’ll soon run out of stock, frustrating customers and falling down the rankings. To prevent both scenarios from happening, Amazon Selling Coach lets you know which SKU is about to run out of stock and how much you should reorder based on previous sales data.
Note: Amazon Selling Coach is only available to sellers with a Professional selling plan.
Since most Amazon.com sellers source products from China, it makes sense to follow the same strategy. However, with over 150,000 suppliers on the platform, finding quality suppliers is quite the undertaking; the keyword here is ‘reliable’.
Agreeing to purchase inventory from manufacturers with little to no history on the platform is ill-advised, to say the least. Such suppliers run the risk of:
Note: Although such suppliers are few and far between, we recommend using Zonguru’s Easy Source tool. It scours Alibaba.com’s database to find highly reputable and established manufacturers in a matter of seconds!
Sometimes products will fly off the shelves. Other times you’ll need to rely on promotions and discounts to meet set goals—it’s how online selling goes. At certain times of the year, however, there’s an overall increase in sales. Q4(the last quarter of the year) is such an example; it includes holidays like Black Friday, Cyber Monday, Christmas, and New Year’s Eve.
To capitalize on the festivities, you need to forecast the rise in demand and stock accordingly.
Pro tip: Confirm with your supplier beforehand if they can ship greater amounts of inventory without any delays. Getting your goods to the warehouse before the busy season kicks off prevents last-minute disruptions and ensures maximum sales and profitability.
Making Amazon inventory management easier is a two-step process. Number one, switch to FBA instead of FBM or self-fulfillment. Doing so lets you outsource the storage, handling, and shipment of your products. Second, use the Zonguru Easy Source tool to find the best suppliers in China and source quality products!
To sum it all up, an inventory management strategy based on the techniques we just discussed go a long way in maintaining a positive brand image and cutting down hidden costs. But remember, what works today may not be as effective tomorrow. Overcoming new challenges to inventory management are only possible by adapting and learning new strategies.
At Zonguru, we conduct weekly training sessions on all things FBA including how to source, ship, store, and fulfill your products. Our community consists of successful and passionate sellers who share tips and tricks on how to manage and grow an Amazon business. By becoming a part of this tight-knit community, you learn why and how big sellers dominate their respective niches!
Don’t delay, and join our FREE live training sessions today!
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