Effective inventory management is one of the most critical aspects of doing business on Amazon. With millions of products competing for potential buyers’ attention, efficient stock management can be a decisive factor in your success.
Effective Amazon inventory management ensures you never run out of stock and helps optimize cash flow, improve customer satisfaction, and maximize profits.
However, managing your Amazon inventory is a delicate balancing act; a minor misjudgment can result in a severe setback.
Common Amazon Inventory Management Issues
Here are some of the most common inventory management challenges faced by Amazon sellers:
Running out of inventory
Overstocking
Dead or stranded inventory
Spoilage
Low stock levels
High storage fees
Unawareness of FBA capacity and stock-level guidelines
Strategies for Amazon Inventory Management
Some of the critical strategies for managing inventory include:
Perform Regular Inventory Audits. These audits help ensure that physical stock matches the data in your inventory management system.
Use Inventory Management Software: Inventory management software helps sellers automate tracking stock levels, forecasting demand, and managing reorders.
Plan for Seasonal Demand: Careful planning is required to manage inventory for seasonal spikes, such as shopping for Black Friday or the holiday season.
Build and Maintain Relationships with Suppliers: Strong supplier relationships are vital for maintaining a reliable inventory flow. Reliable suppliers can offer better lead times, bulk discounts, and more favorable payment terms.
In the detailed article below, we will take a deeper look at:
What is inventory management and its importance
Amazon capacity limit guidelines
Common inventory management issues
10 Proven Strategies for efficient Amazon inventory management
So, check out the detailed article and make sure you get all the vital information.
As an Amazon seller, managing inventory is one of the most critical aspects of your business. With millions of products competing for potential buyers’ attention, having a robust stock management system can make or break your success.
Effective Amazon inventory management ensures you never run out of stock and helps optimize cash flow, improve customer satisfaction, and maximize profits.
This blog post explains why inventory management is crucial for Amazon sellers and how Amazon handles inventory. It also delves into common Amazon inventory problems and offers 10 essential strategies for optimizing your Amazon stock management.
What is Inventory Management and its Importance?
Inventory management is the backbone of your business. It refers to keeping track of the products in your store or warehouse so you are always ready to fulfill customer demand.
It helps you know which products you have, their quantity, and when to reorder. Effective inventory management makes you less susceptible to running out of stock as well as overstocking.
Efficient inventory management is the cornerstone of a successful supply chain. It ensures a balance between supply and demand, reducing the risk of stockouts and excess inventory.
How Does Amazon Inventory Management System Work?
Amazon offers FBA sellers a streamlined fulfillment solution. When a customer places an order, Amazon takes care of everything — picking, packing, shipping, customer service, and even handling returns.
Sellers who opt for Amazon FBA are provided with a robust set of inventory management tools within Amazon Seller Central. These tools help sellers manage their stock efficiently and ensure faster, more reliable order fulfillment.
One key feature of these tools is the Inventory Performance Dashboard. This dashboard displays essential inventory metrics, such as sell-through rates, excess inventory, stranded inventory, in-stock inventory, and recommended actions to optimize the inventory.
Amazon also automatically tracks how well you manage your inventory through a metric called the Inventory Performance Index (IPI). Think of it as a credit score for your inventory. A high IPI score means you’re managing your stock efficiently, which in turn helps lower storage costs and improve profits.
The Inventory Performance Index displays a bar for each of the four influencing factors:
Amazon FBA Capacity Limits
If you are selling on Amazon using FBA, it is important to know the capacity management guidelines to avoid paying additional fees and fines.
Following are key FBA capacity limit and inventory level guidelines:
1. FBA Capacity Limits
Amazon’s updated FBA capacity limits are monthly limits that help sellers plan their inventory more efficiently. Here’s what you need to know:
Capacity limits are updated during the third week of each month.
You can plan inventory up to three months in advance based on these limits.
Individual selling accounts have a capacity limit of 15 cubic feet; this limit is neither eligible for change nor increase.
New professional selling accounts (active in FBA for less than 39 weeks) don’t receive FBA capacity limits. This allows you to establish your FBA sales record without limits so that we can determine how much capacity your FBA business needs as you grow.
Professional selling accounts (active in FBA for over 39 weeks) receive capacity limits based on IPI score and sales performance. Sellers with consistently higher IPI scores receive higher capacity limits, adjusted for sales volume and available capacity.
2. Additional Capacity
If your current capacity is insufficient for your inventory needs, you can request additional space through the FBA Capacity Manager. Here’s how the process works:
Sellers bid on additional storage space using a reservation fee. This fee is essentially a bid against other sellers for extra capacity.
The highest bids will get priority.
The reservation fee can be offset up to 100% if the new inventory sells through, meaning you may not have to pay any extra fees as long as your products move quickly.
3. Low-Level Inventory Fee
On April 1, 2024, Amazon introduced a low-level inventory fee aimed at products with consistently low stock levels compared to customer demand. Here are the main points to consider:
The fee applies if your inventory levels are below 28 days of supply relative to historical demand.
Both long-term (90-day) and short-term (30-day) demand data are considered. If either period shows more than 28 days of supply, the fee does not apply.
The fee is calculated at the parent-product level and added to the FBA fulfillment fee for eligible products.
Other Inventory Control Options for Amazon Sellers
Besides FBA, Amazon also provides other inventory control options to its sellers. These options include:
Fulfillment by Merchant (FBM)
If you prefer to manage fulfillment yourself, Amazon’s Fulfilled by Merchant (FBM) program offers a suite of tools to help you save both time and money while ensuring customer orders are handled efficiently. FBM allows you to sync inventory across multiple channels, whether you’re selling on Amazon or other platforms, and streamline the fulfillment process.
If you sell across multiple platforms or your own website, Multi-Channel Fulfillment (MCF) can be very useful. MCF allows you to use your FBA inventory to fulfill orders across off-Amazon sales channels, including your brand website, an e-commerce marketplace, or a social media store.
For multi-channel sellers, tools like Veeqo — Amazon’s free inventory management software — can help you manage stock across all your platforms.
6 Common Inventory Management Challenges for Amazon Sellers
Managing stock levels is like walking on a razor’s edge. Even minor missteps can lead to significant financial consequences. Here, we’ll explore the most common inventory challenges Amazon sellers face and the impact they can have on your business.
1. Running Out of Inventory
When your product runs out of stock, you may lose immediate sales and suffer from a lower product ranking.
Amazon’s ranking algorithm considers product availability, so frequent stockouts can cause your listing to be pushed further down in search results.
The consequences of a drop in rankings can be long-lasting. Even when your inventory is replenished, it may take significant time and resources to regain your previous rank.
2. Overstocking Amazon Inventory
While having plenty of inventory may seem like a good idea, this can be especially problematic if the products aren’t selling quickly enough.
For Amazon FBA sellers, overstocking can be a costly problem. On the 15th of every month, Amazon inspects its fulfillment centers for aged products.
For items that have been sitting in the fulfillment center for 181 days or more, Amazon will charge the seller an additional fee called an aged inventory surcharge. The fee amount depends on the age of the products stored.
The aged inventory surcharge is deducted on the same date each month from your Amazon seller account balance or from the credit card that you put on file when you registered as an Amazon seller.
3. Stranded or Dead Inventory Stock
Another common issue is stranded or dead inventory. Stranded inventory refers to sellable inventory products that sit unsold in fulfillment centers or warehouses due to listing errors. These products can be sold but are not listed on the site.
Dead inventory refers to stock that is unlikely to sell because of poor product-market fit or misjudged demand forecasts.
Both stranded and dead inventory take up valuable warehouse space, adding to your storage costs without generating any revenue.
Spoilage is another risk of poor inventory management. Stock sitting in the storage facility for too long may expire, leading to waste and lost revenue.
Spoilage isn’t limited to food items. Cosmetics, supplements, and certain chemicals can also have a limited shelf life.
5. Low Stock Levels
Maintaining low stock levels may seem like a way to reduce storage costs, but it can also lead to frequent stockouts and missed sales opportunities. Running with too little inventory increases the risk of being unable to meet customer demand, especially during peak seasons or sudden spikes in sales.
Furthermore, ordering in smaller quantities can increase the per-unit cost of your products, affecting your overall profitability. Low stock levels also mean you may have to reorder more frequently, potentially leading to higher shipping costs and longer lead times.
To avoid running low on stock, it’s important to have a robust inventory tracking system in place. This should include real-time visibility into stock levels, automated alerts for low inventory, and efficient restocking processes.
6. High Monthly Storage Costs
In addition to long-term storage fees, Amazon charges monthly storage fees based on the space your inventory occupies. Efficient stock-level management is key to minimizing these costs. By closely monitoring sales trends and adjusting orders accordingly, you can prevent overstocking and avoid unnecessary storage fees.
10 Amazon Inventory Optimization Strategies
Optimizing Amazon’s inventory is crucial for maintaining a healthy supply chain, minimizing costs, and ensuring customer satisfaction. Below are some key strategies, along with practical examples and tips, to help Amazon sellers manage and optimize their inventory efficiently.
Implementing a first-in, first-out (FIFO) system can effectively manage products with limited shelf life. By selling older inventory first, you reduce the risk of spoilage and ensure that your stock remains fresh for customers.
1. Perform Regular Inventory Audits
Regular inventory audits help ensure that physical stock matches the data in your inventory management system. This is important to identify discrepancies and prevent stockouts or overstocking.
Combine automated systems with regular manual audits to ensure complete accuracy. Inventory management software like Skubana or Sellbrite can automatically track stock movements, alerting you to discrepancies between actual and recorded stock levels.
2. Use Inventory Management Software
Inventory management software helps sellers automate the process of tracking stock levels, forecasting demand, and managing reorders. These tools can integrate directly with Amazon’s systems and other sales channels, providing a holistic view of your business.
Automation: Automatically track stock levels and set up reorders when necessary, reducing manual effort.
Demand Forecasting: Many tools such as Skubana, RestockPro, and Sellbrite, offer data-driven insights, helping you predict demand and manage reorders with greater precision.
Multi-channel Integration: These tools allow you to manage inventory across different platforms, including Amazon, eBay, Shopify, and more.
However, some inventory management tools can be expensive, especially for small sellers.
3. Optimize Reordering and Stock Replenishment
Proactive reordering and replenishment strategies are essential to avoid both stockouts and excess inventory. Sellers should use data-driven decision-making to determine the best reorder points for each product.
Implement reorder point Analysis. A reorder point (ROP) is the stock level at which a new order should be placed to replenish inventory before running out. The reorder point should account for lead times (the time it takes for stock to arrive) and average daily sales.
ROP formula = Average sales per day x Lead time + Safety stock.
Adjust reorder points regularly based on changes in sales velocity and supplier lead times. Use tools to automate reorder point calculations and avoid manual guesswork.
4. Plan for Seasonal Demand
Managing inventory for seasonal spikes, such as Black Friday or holiday season shopping, requires careful planning. If you don’t plan ahead, seasonal demand surges can strain your inventory, leading to stockouts.
Use historical sales data to anticipate demand spikes during peak seasons. Adjust your stock levels accordingly to ensure you have enough inventory without overstocking.
5. Use Multi-Channel Fulfillment (MCF)
Amazon’s Multi-Channel Fulfillment (MCF) allows sellers to use their Amazon inventory to fulfill orders on other platforms, such as eBay, Shopify, or their website. This can simplify inventory management across multiple channels and reduce the need for separate inventory pools.
Using a single inventory pool for multiple sales channels reduces the complexity of managing different stock levels across platforms. It also helps you streamline fulfillment, as Amazon handles the logistics of picking, packing, and shipping, even for orders from other platforms.
6. Automate Order Fulfillment and Tracking
Automation is a key component of efficient inventory management. By automating order fulfillment and tracking processes, sellers can reduce manual errors, improve processing times, and maintain better control over stock levels.
Use tools like ShipStation to automatically process orders and update inventory levels across all platforms in real time to enhance shipping, tracking, and label creation. This ensures that stock levels are accurate and that orders are fulfilled quickly.
7. Predicting Demand with Data
Accurately predicting demand is a critical part of inventory management. By leveraging historical sales data, seasonal trends, and predictive analytics, sellers can estimate future demand and avoid the pitfalls of overstocking or running out of stock.
Use Amazon FBA’s Restock Tool and Inventory Performance Index (IPI) to predict future demand based on historical sales patterns. Use both short-term (30-day) and long-term (90-day) sales data to create more accurate forecasts, especially before major sales events like Black Friday or Prime Day.
8. Manage Returns and Reverse Logistics
Handling returns efficiently is critical for minimizing the impact on your inventory. Returned items should be inspected and, if sellable, restocked quickly to reduce inventory costs.
Set up a streamlined process for managing returns, including automated systems to track returned items, inspect them, and determine whether they can be restocked. Use Amazon’s FBA return services to manage reverse logistics and restocking.
9. Build and Maintain Relationships with Suppliers
Strong supplier relationships are vital for maintaining a reliable inventory flow. Reliable suppliers can offer better lead times, bulk discounts, and more favorable payment terms.
Develop long-term relationships with suppliers who offer flexibility, such as shorter lead times or the ability to fulfill rush orders. Also, consider having multiple suppliers to mitigate risk if one supplier fails to deliver.
Sustainability is becoming increasingly important in eCommerce, and adopting eco-friendly practices in inventory management can reduce waste, lower costs, and appeal to eco-conscious consumers.
You can do the following things for sustainability:
Optimize Packaging: Use minimal, eco-friendly packaging that reduces storage space and environmental impact.
Reduce Waste: Avoid overproduction or overstocking by improving demand forecasting.
Efficient Logistics: Choose suppliers and fulfillment partners that offer carbon-neutral shipping options.
Conclusion
Inventory management is a crucial element of success for Amazon sellers. Whether you’re using FBA or fulfilling orders independently, maintaining optimal stock levels, preventing stockouts, and reducing storage fees can help you grow your business.
By implementing these strategies, Amazon sellers can optimize their inventory, reduce costs, and maintain a competitive edge in a rapidly evolving marketplace.
Amazon inventory management refers to the process of tracking, controlling, and optimizing stock levels on the Amazon marketplace. It involves tools and strategies to ensure that there is always enough inventory to meet demand without overstocking.
Amazon manages inventory through advanced fulfillment centers and real-time tracking systems. Sellers using Amazon FBA send products to Amazon warehouses, where they are stored, packed, and shipped. Sellers must monitor inventory levels through Seller Central.
Sellers manage their inventory on Amazon using various tools, including stock alerts, inventory management software, and analyzing sales reports. Strategies like setting reorder points and forecasting demand help optimize stock levels.
Managing FBA inventory involves monitoring your IPI score, avoiding long-term storage fees, and using Amazon’s planning tools to optimize restocking. Sellers should also track sell-through rates and use removal orders when necessary to prevent aging inventory.
If you run out of stock, your product’s ranking on Amazon may drop, leading to reduced visibility and fewer sales. It’s important to restock quickly and plan using sales data to prevent future stockouts.
Yes, there are several third-party tools available, such as RestockPro, Skubana, and Sellbrite, that integrate with Amazon and provide enhanced features for managing inventory, forecasting demand, and automating stock control processes.
