5 min read

Amazon Inventory Management: Streamlining Your E-commerce Business

Written by
Vanessa Hung
Published on
February 9, 2024

Struggling with inventory issues on Amazon? Slip-ups here could lead to more than just disgruntled customers; they risk severe penalties or even the dreaded account suspension.

Seize control with Amazon inventory management. Grasping the nuances of Amazon inventory management means taking control of your product stock, a move that can dramatically enhance customer satisfaction, secure your spot in the Buy Box, and streamline your entire operation.

Want to get your inventory into tip-top shape? Keep reading to make stock worries a thing of the past.

Understanding Amazon Inventory Management

Amazon inventory management refers to the process of tracking and controlling the stock of products you sell on Amazon. Proper inventory management is crucial for several reasons:

Inventory Management Basics

Inventory management involves tracking your inventory levels, knowing when to restock, and managing your storage space. Amazon offers two main options for inventory management:

Amazon has strict rules regarding inventory levels and storage limits. As of March 1, 2024, Amazon replaced the weekly restock limits and quarterly storage volume limits with FBA capacity limits.

The new FBA capacity management system will give most sellers more inventory capacity and control than the previous FBA inventory storage and restock limits. The two sets of inventory limits caused confusion and this new system aims to simplify the process.

To avoid penalties, it's important to keep an eye on your inventory levels and storage space. Amazon charges storage fees for products that have been in their warehouses for too long.

You can use Amazon's Inventory Management System to help you keep track of your inventory levels and storage space. The system provides you with real-time data on your inventory levels and can help you identify which products are selling well and which ones are not.

Strategies for Effective Inventory Management

1. Forecasting Customer Demand

One way to do this is by analyzing sales data to identify trends and patterns. You can use this data to forecast future demand and adjust your inventory levels accordingly.

Another way to forecast customer demand is by using Amazon's sales forecasting tools. These tools use machine learning algorithms to analyze your sales history and provide you with an accurate forecast of future demand to meet customer demand without overstocking.

2. Managing Overstock and Stockouts

Overstocking and stockouts can both be detrimental to your business. Overstocking ties up valuable capital and can lead to increased storage costs, while stock outs can result in lost sales and unhappy customers. 

One way to manage overstock is by setting up automated reorder points, so you never run out of stock while also avoiding overstocking. You can also use Amazon's inventory management tools to monitor your stock levels and adjust them as needed.

To manage stockouts, it's important to have a backup plan in place. This could involve setting up alternative suppliers or having a safety stock of products on hand. By having a backup plan, you can ensure that you can quickly restock your inventory and avoid lost sales.

Optimizing Inventory Performance

Optimizing inventory improves business efficiency by aligning supply with demand and reducing excess costs. Here's how to optimize your inventory performance for better results.

Inventory Performance Index (IPI)

The IPI is a score that Amazon assigns to your account based on your inventory management performance. It takes into account factors such as excess inventory, stockouts, and stranded inventory. A higher IPI score means you'll have access to more storage space and potentially lower storage fees.

To improve your IPI score, focus on reducing excess inventory and stockouts. Use inventory turnover to determine which products are selling quickly and which are not.

Consider implementing inventory optimization techniques such as just-in-time (JIT) inventory management or ABC analysis to improve your inventory turnover and reduce excess inventory.

Improving Inventory Health

Improving your inventory health means ensuring it is in good condition and available for sale. This includes reducing the amount of stranded inventory, which is inventory that is not available for sale due to listing or shipping issues.

To improve your inventory health, regularly monitor your inventory levels and ensure that your listings are up-to-date

Technological Tools and Software Solutions

Managing your Amazon inventory efficiently involves deploying various tech tools and software solutions for tasks such as inventory tracking, demand forecasting, and preventing stock outs or overstocking. 

Key tools include the following:

Sellbrite

RestockPro

Inventory Performance Index (IPI)

Third-Party Services

Dealing With Amazon's Unique Inventory Challenges

To ensure you have a successful business on Amazon, you need to be aware of these challenges and have a plan to deal with them.

Stranded Inventory

Stranded inventory is inventory that is not available for sale due to an issue with the listing. This can happen if the listing is inactive or suppressed or the product is not in the correct category.

To avoid stranded inventory, regularly check your listings and ensure that they are active and in the correct category.

If you have stranded inventory, take action to fix the issue as soon as possible. You can also use Amazon's Stranded Inventory Report to identify and fix stranded inventory.

Aged Inventory

Aged inventory is inventory that has been in Amazon's fulfillment centers for an extended period. Aged inventory can lead to increased storage fees and can be difficult to sell. To avoid aged inventory, regularly review your inventory levels and adjust your ordering to match demand.

You can also use Amazon's Inventory Age Report to identify aged inventory and take action to sell it. Consider running promotions or discounting aged inventory to move it quickly.

Managing Returns

Returns are an inevitable part of selling on Amazon. Managing returns can be time-consuming and can impact your profitability. To manage returns effectively, have clear return policies and communicate them to your customers.

Consider using Amazon's Automated Returns Processing to streamline the returns process. This service automatically authorizes returns and provides customers with return labels, reducing the workload on your end.

Maintaining Good Supplier Relationships

Maintaining good relationships with your suppliers is essential to ensure a consistent supply chain. Communicate regularly with your suppliers and ensure that they understand your inventory needs.

Consider negotiating favorable terms with your suppliers, such as reduced lead times or lower minimum order quantities. By maintaining good supplier relationships, you can ensure that you always have the inventory you need to meet demand.

Advanced Techniques and Best Practices

Here are some of the best practices from industry experts and top Amazon sellers that you can use to optimize your inventory management:

Just-In-Time (JIT) Inventory

One of the most popular advanced inventory strategies is Just-In-Time (JIT) inventory. This strategy involves keeping the minimum amount of inventory on hand to fulfill customer orders. It’s when you only order more inventory when you receive an order from a customer.

However, implementing JIT inventory requires careful planning and coordination with your suppliers. You need to ensure that your suppliers can deliver the products on time and in the required quantity. You also need to have a reliable system to track inventory levels and trigger orders when necessary.

Safety Stock

While JIT inventory helps you reduce inventory holding costs, it also increases the risk of stockouts. To mitigate this risk, you need to maintain a safety stock of inventory.

Safety stock is the extra inventory that you keep on hand to cover unexpected demand spikes or supply chain disruptions.

The amount of safety stock you need depends on various factors, such as lead time, demand variability, and supplier reliability. You can use statistical methods such as safety stock formula and reorder point calculation to determine the optimal level of safety stock for your business.

ABC Analysis

ABC analysis is a technique that helps you prioritize your inventory based on its value and importance. The technique categorizes your inventory into three groups: A, B, and C.

Group A contains the most valuable and important items that contribute the most to your revenue. Group B contains items that are moderately important, and Group C contains items that are least important.

By categorizing your inventory, you can focus your attention on the items that matter the most and optimize your inventory management accordingly.

For example, you can use different replenishment strategies for each group, such as frequent ordering for Group A and less frequent ordering for Group C.

Monitoring and Adapting to Market Trends

Demand Planning and Forecasting

Demand planning and forecasting involves analyzing trends in your sales data, so you can identify patterns and make informed decisions about how much inventory to keep on hand.

Here are some ways to do this:

Adapting to Sales Velocity Changes

Sales velocity refers to the rate at which your products are selling. During peak seasons, sales velocity can increase significantly, which can lead to stockouts if you don't adjust your inventory levels accordingly.

To avoid stockouts, it's important to have a plan in place for adjusting your inventory levels in response to changes in sales velocity.

One strategy is to increase your inventory levels in anticipation of peak seasons. For example, if you sell a lot of holiday-themed products during the winter season, you may want to increase your inventory levels in October or November to ensure that you have enough stock to meet demand.

Another strategy is to use Amazon's FBA (Fulfillment by Amazon) service, which can help you manage your inventory levels more effectively. With FBA, Amazon handles the storage, packing, and shipping of your products, which can help you avoid stockouts and improve your overall inventory management.

Dealing With Inventory Issues

Handling Returns and Unfulfillable Inventory

Returns and unfulfillable inventory are two common inventory issues that can affect your Amazon business. When a customer returns a product, it may not be in saleable condition, which means it becomes unfulfillable inventory. This can result in lost revenue if not handled correctly.

To manage returns and unfulfillable inventory, you should have a clear return policy in place. This policy should outline the conditions under which a customer can return a product and what happens to the product once it is returned. You should also have a system in place to inspect returned products to determine if they are sellable or unfulfillable.

To handle unfulfillable inventory, you can either dispose of it or return it to your inventory. You can also choose to sell it on Amazon at a discounted price. However, it is important to note that unfulfillable inventory can negatively impact your inventory health and may result in long-term storage fees.

Preventing Lost Revenue from Stranded Inventory

Stranded inventory refers to products that are in Amazon's fulfillment centers but are not available for sale. This can happen when a product's listing is inactive, suppressed, or stranded.

To prevent lost revenue from stranded inventory, you should regularly monitor your inventory health and product listings. You should also ensure that your listings are up-to-date and meet Amazon's requirements. If you have stranded inventory, you can create a removal order to return the products to your inventory or dispose of them.

Frequently Asked Questions

How Can I Access and Interpret Inventory Reports on Amazon?

To access inventory reports on Amazon, log into Seller Central, navigate to Reports, and select the Inventory tab for inventory levels, sales, and restock reports. Metrics to focus on include sell-through rate, days of inventory, and excess inventory.

Are There Any Free Tools Available for Amazon Inventory Management?

Yes, there are several free tools available for Amazon inventory management. Seller Central offers basic tools such as restock recommendations, inventory reports, and storage fee calculators. Tools like InventoryLab, Sellbrite, and ScoutIQ have free trials and limited free versions.

What Are the Best Strategies for Dealing With Excess Inventory on Amazon?

Promotions or discounts can be effective for moving excess inventory. Bundling slow-moving items with hot products can also boost sales. Amazon's Liquidation program or third-party services can be used if needed.

Can You Suggest a Template for Managing Amazon Inventory Using Excel?

The Amazon Inventory Management Template by Spreadsheet123 is one popular Excel template for tracking inventory levels, sales, and restock recommendations. Amazon’s free Inventory Health report can be also downloaded in Excel format.

Conclusion

Efficient inventory management is essential for businesses to thrive on Amazon. Monitor inventory levels and sales velocity to avoid stockouts and overstocking.

Utilize Amazon's tools like FBA and Seller Central to streamline inventory processes. Optimize listings and pricing to improve inventory turnover and increase profitability.

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