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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:

  • What an inventory management strategy is.
  • How it can massively benefit your business.
  • The downside of badly managed inventory.
  • How to create the best strategy.

We will also round off this post by answering a few questions Amazon sellers commonly ask. Ready? Let’s dive straight in!

What Does Amazon Inventory Management Strategy Mean?

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.

Why is Inventory Management Important?

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!

Amazon Inventory Strategy – The Benefits

Implementing an effective Amazon inventory management strategy has several competitive advantages. Some of these include:

  • Improving brand image by having stock available for customers at all times.
  • Capitalizing on competitors’ stock-outs and subsequently expanding your customer base.
  • Handling seasonal variations in demand and adjusting accordingly.
  • Sourcing and managing inventory for cheaper rates than rival sellers.
  • Improving your overall logistics network and increasing the chances of enrolling in SFP (Seller Fulfilled Prime).

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.

Consequences of Poor Amazon Inventory Management

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. 

Inventory Performance Index and Storage Limitations

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. 

What an IPI score looks like inside Amazon Seller Central 

Multiple factors influence the IPI score. The main ones are:

  1. Excess Inventory: Overstocking inventory, i.e., more units than needed for the next 30-60 days based on forecasted demand.
  2. Sell-Through: The number of items you managed to sell divided by the average quantity of items present in the fulfillment center during the past 90 days. The faster your products move off the shelves, the better.
  3. Stranded Inventory: Products which—due to a listing problem—are currently unavailable for sale. The lower your stranded inventory percentage, the higher your overall IPI score. 
  4. In-Stock Inventory: Keeps a check of how quickly you replenish your most popular products. Ensures fast-selling items remain in stock at all times.

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.

Worsening Best Seller Rank (BSR) and Increased Customer Dissatisfaction

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. 

A Halt in Positive Reviews

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!

Costly Mistakes Including Lost and Broken Products!

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!

Creating a Holistic Amazon FBA Inventory Management Strategy 

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.

Optimize Product Listings

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:

  1. Comply with Amazon’s Product Listing Guidelines
  2. Help show your target audience that your product is right for them.

To optimize your product listings, you should:

  • Upload high-quality product images that also meet image resolution requirements
  • Create attractive copy that clearly highlights the benefits of using your products
  • Insert keywords naturally into your product title, bullet points, and keywords
  • Include information you feel that the customer should know about in the product description section

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!

Forecast Sales and Inventory Turnover Rates

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.

Get in Touch with Reliable Suppliers/Manufacturers

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:

  • Manufacturing sub-par quality products after sending over a high-quality samples
  • Raising prices after the initial agreement and refusing to renegotiate
  • State unrealistic production times

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!

Anticipate Shifts in Consumer Demand 

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.

How Do I Make Amazon Inventory Management Easier

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!

Conclusion

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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