Managing inventory on Amazon can make or break your e-commerce success. Here’s a quick summary of the 10 best practices to help you avoid stockouts, reduce fees, and maximize profits:

• Set Reorder Points: Use a formula to know when to restock.

• ABC Classification: Focus more on high-revenue products (Category A).

• Leverage Amazon Tools: Use the Inventory Performance Index (IPI) and Restock Inventory tools.

• Control FBA Stock: Avoid excess inventory to reduce Amazon storage fees.

• Automate Reordering: Save time by setting up automatic inventory replenishment.

• Forecast Demand: Use Amazon's forecasting tools to predict future sales.

• Keep Buffer Stock: Maintain safety stock to handle unexpected demand.

• Track Metrics: Monitor sell-through rates, in-stock rates, and excess inventory.

• Order Timing: Use Just-in-Time (JIT) strategies to balance stock levels.

• Regular Inventory Checks: Use cycle counting and audits to ensure accuracy.

Why It Matters:

Proper inventory management ensures you meet demand, avoid extra fees, and keep customers happy. Use Amazon's tools and these strategies to stay ahead.

Pro Tip: Keep 30–60 days of stock on hand and monitor trends weekly to adjust quickly.

For details on each strategy, continue reading the full article.

How to Manage Inventory on Amazon - Best Practices For ...

1. Define Stock Reorder Points

Reorder points are essential for managing inventory effectively. They indicate the minimum stock level that signals it's time to place a new order. This helps avoid running out of stock or overstocking, which can lead to unnecessary costs.

Here’s the basic formula for calculating a reorder point:

Reorder Point = (Lead Time in Days × Average Daily Usage) + Safety Stock

For example, if it takes 14 days to restock, you sell 20 units daily, and you keep 50 units as safety stock for an organic face serum, the reorder point would be:
(14 × 20) + 50 = 330 units.

Tips for Setting Reorder Points

• Analyze Sales Trends: Look at historical data to identify seasonal patterns.

• Account for FBA Delays: Factor in variations in fulfillment center receiving times.

• Adjust for Demand Changes: Increase safety stock before big events like Prime Day or Black Friday.

Reorder points should be updated regularly to reflect shifts in the market. Automated tools can simplify this process by monitoring inventory levels and alerting you when it’s time to reorder, which is especially useful if you manage multiple SKUs across various locations.

2. Use ABC Inventory Classification

After setting reorder points, take your inventory management a step further with ABC classification. This method helps you prioritize products based on their contribution to sales, following the Pareto Principle: 80% of sales typically come from just 20% of products. By focusing on these key items, you can better manage what drives your revenue.

Here’s how ABC classification organizes your inventory:

Category A Products
These are your top earners and require the most attention. Use automated alerts for stock levels and enforce strict reorder points. For example, if you sell premium skincare, your high-end serums or moisturizers likely fall here.

Category B Products
These items sell regularly but contribute less to overall revenue. Weekly reviews and standard inventory controls are sufficient for this group.

Category C Products
These make up the bulk of your inventory but have the smallest impact on revenue. Monitor them monthly and consider strategies like:

• Reducing stock levels

• Combining similar variants

• Running promotions to clear excess stock

Implementation Tips

To apply ABC classification, rank your products by annual sales and assign categories based on their cumulative contribution.

"ABC analysis is an inventory management method that helps businesses group items into three categories based on value and impact on revenue." - Marshall Hargrave, Financial Writer

Keep in mind, these categories aren’t static. Review and adjust quarterly to keep up with shifting market demands. U.S. retailers, for instance, hold $1.39 in inventory for every dollar of sales. Mismanagement can lead to significant losses, as seen with the $349 billion inventory distortion costs in 2022.

Start by focusing on Category A items since they have the biggest influence on your business. This targeted effort ensures you optimize your inventory investment while maintaining balanced service levels across all categories. ABC classification works hand-in-hand with reorder points to keep your inventory strategy efficient and effective.

3. Master Amazon's Built-in Planning Tools

After setting up reorder points and classifying your inventory, it's time to dive into Amazon's built-in tools for better stock management. Seller Central offers several tools to help you keep inventory under control. One key metric to understand is your Inventory Performance Index (IPI) score.

What Is Your IPI Score?

The Inventory Performance Index (IPI) shows how well you manage your FBA inventory. It ranges from 0 to 1,000, and staying above 400 is ideal. A strong score can reduce storage costs and improve profits.

Here's what impacts your IPI score:

Using the Restock Inventory Tool

The Restock Inventory tool is your go-to for managing replenishment. It provides suggestions for:

• How much to restock based on past sales data

• Managing ship-by dates efficiently

• Optimizing case pack quantities

• Adjusting lead times to avoid delays

Fine-Tuning Your Planning Settings

Once you're familiar with the tool, customize its settings to suit your strategy:

• Lead Time: Factor in manufacturing and shipping delays.

• Case Pack Quantities: Order in bulk to improve efficiency.

• Replenishment Frequency: Balance storage costs with having enough stock.

• Supply Chain Options: Adjust settings for your specific fulfillment process.

Aim to keep 30–60 days of stock on hand. If you have more than 90 days' worth, it’s considered excess. Remove items nearing the 365-day mark to avoid long-term storage fees.

4. Manage FBA Stock Levels

Keeping your FBA inventory in check means striking a balance between having enough products to meet demand and avoiding surplus stock that can lead to extra costs.

Understanding Storage Fee Triggers

Amazon's storage fees depend on how long your inventory sits in their fulfillment centers. Here's a quick breakdown:

Maintaining Healthy Stock Levels

Amazon categorizes your inventory health into four groups:

• Out of stock: Act fast to restock and avoid missing sales.

• Low stock: Inventory covers less than 28 days of demand - time to replenish.

• Healthy: Stock levels are just right to meet demand.

• Excess: Over 90 days' worth of supply - consider discounts or removal.

Keep an eye on your sell-through rate to ensure products are moving efficiently. Use these categories to decide when to restock or clear out inventory.

Smarter Storage Strategies

To keep costs down and inventory flowing, consider these tips:

• Split inventory between Amazon fulfillment centers and cheaper storage options.

• Take advantage of Amazon's free removal promotions when available.

• Use Multi-Channel Fulfillment (MCF) to distribute inventory across different sales platforms.

These strategies can help you avoid unnecessary fees while ensuring your products are where they need to be.

Monitoring Key Metrics

Tracking the right metrics is essential for maintaining efficient inventory management. Focus on:

• Days of supply: Aim for 30-60 days based on demand.

• Storage volume usage: Keep an eye on how much space you're using.

• Sales rank changes: Monitor shifts over the past 7 days.

• Estimated excess quantity: Identify overstocked items.

• Sell-through rates: Ensure steady product movement.

Starting April 1, 2024, Amazon will introduce a low-level inventory fee for items consistently kept below 28 days of supply. Weigh this against storage fees to find the right balance for your business.

5. Set Up Automatic Reordering

Setting up automatic reordering helps you keep inventory levels steady without constant manual effort. Use the reorder point formula from Section 1 as your starting point. This formula makes it easier to integrate automatic reordering into your process.

Customizing Replenishment Settings

Amazon's Restock Inventory tool allows you to tweak key settings to fit your needs:

Adjust these settings carefully to ensure smooth operations. Next, let’s focus on managing lead times effectively.

Optimizing Lead Times

Here are some ways to improve lead times:

• Track supplier performance to see how consistent their deliveries are. Adjust lead times based on actual performance data.

• Add extra time during busy seasons, like the fourth quarter, to account for delays.

• Use average delivery times instead of ideal scenarios to set more realistic timelines.

Advanced Reordering Tips

• Keep an eye on your days of supply to maintain inventory above the 28-day mark. This helps you avoid low-inventory fees.

• Update reorder points regularly to reflect changes in sales trends.

• Set alerts to notify you when stock is nearing reorder levels.

• Review and adjust safety stock levels often, considering how reliable your suppliers are.

These steps help you stay ahead of inventory challenges and keep your operations running smoothly.

6. Calculate Future Demand

Keeping the right inventory levels on Amazon requires precise demand forecasting. This involves analyzing past sales data and understanding market trends.

Understanding Sales Patterns

Different products have different sales behaviors. Here's how to tailor your forecasting:

Once you've identified the patterns, use Amazon's tools to turn this data into actionable insights.

Using Amazon's Forecasting Tools

Amazon provides a demand forecasting tool that predicts future demand up to 40 weeks ahead. It analyzes factors like order history, seasonality, promotions, and market trends. To access this, go to the "Sales Summary" tab on the "Restock Inventory" page and click "View Forecast." Keep an eye on the green line - it represents the expected weekly demand.

Fine-Tuning for Market Changes

To improve accuracy, adjust your forecasts for specific market conditions:

• Filter Outliers: Remove unusual sales spikes or stockouts to avoid skewed data.

• Plan for Growth: If you’re running promotions or expect steady growth, increase your forecast by a percentage to reflect this.

• Seasonal Adjustments: Pay close attention to trends during peak seasons.

"When selling products that have steady, established sales that do not fluctuate from season to season, looking at a longer-term velocity such as 30, 60, or 90 days tends to be a good rule of thumb." – SoStocked

Collaborative Forecasting

Bring together your sales, marketing, and operations teams to refine your demand planning. As Bellerose from Lobster Order explains:

"Monthly meetings with sales, marketing, and operations representatives ensure that all views are accounted for. This collaborative method has reduced our stock-outs by 35% year-over-year." – Bellerose, Lobster Order

7. Keep Buffer Stock

After estimating future demand, the next step is securing a safety net with buffer stock. This extra inventory helps prevent stockouts during unexpected demand spikes or supply chain hiccups, all while keeping storage costs manageable. While earlier steps focused on reordering and demand prediction, buffer stock acts as a safeguard against sudden disruptions.

Calculating Buffer Stock

You can calculate buffer stock using this formula:

(Maximum Daily Usage × Maximum Lead Time) - (Average Daily Usage × Average Lead Time)

For example, if your maximum daily usage is 100 units with a maximum lead time of 14 days, and your average daily usage is 60 units with an average lead time of 10 days:
(100 × 14) - (60 × 10) = 800 units

Tips for Managing Buffer Stock

Aim to keep about 30 days of supply on hand to ensure steady inventory. Adjust your buffer stock based on product type:

Why It Matters for Amazon Sellers

Running out of stock doesn’t just hurt sales - it can also harm your product ranking, ad visibility, geographic reach, and customer satisfaction.

"The lost revenue from being out of inventory is usually one of the biggest expenses during a stockout." - Chelsea Cohen

Splitting Your Stock

To manage restock limits and ensure backup inventory, consider dividing your buffer stock between Amazon FBA and a third-party warehouse.

"A buffer stock, also known as safety stock, is a reserve quantity of goods that you can use in case of emergencies to prevent stocking out. Sort of like a false zero alert that triggers you to place an order early." - SoStocked Knowledge Base

Monitoring and Adjusting

Keep an eye on your buffer stock by tracking:

• Days of supply

• Changes in lead times

• Shifts in demand trends

• Storage costs

Adjust levels as needed to maintain balanced inventory while keeping expenses under control. Regular checks ensure your buffer stock stays effective.

8. Track Important Stock Numbers

Once you've set up reorder points, classified your inventory, and secured buffer stock, the next step is keeping tabs on key metrics. Monitoring these numbers ensures your inventory strategy stays on track and adapts as needed.

Key Metrics to Keep an Eye On

Tools Amazon Provides

Amazon's FBA Inventory page offers a wealth of data, including Sales Summary, Inventory Health, Storage Costs, and Lead Time Analysis. These tools provide insights into historical sales, recommended stock levels, estimated fees, and the best times to reorder.

Turning Metrics Into Action

Metrics aren't just numbers - they guide decisions. For example, if your sell-through rate dips below 30%, consider lowering order quantities, adjusting prices, or running promotions. Regularly reviewing storage costs also helps streamline operations.

Automate Tracking for Efficiency

Amazon's Inventory Performance dashboard simplifies monitoring. It tracks excess inventory, sell-through rates, stranded stock, and popular item levels. Check these metrics weekly to spot trends and fine-tune your approach. The Restock Inventory report also offers tailored recommendations on when and how much to reorder, keeping storage costs low while maintaining the right stock levels.

9. Time Inventory Orders Precisely

Getting the timing right for your inventory orders is key to balancing stock availability and storage costs. A Just-in-Time (JIT) strategy can help you receive products exactly when needed, cutting down on waste and inefficiencies. By keeping a close eye on key metrics and reviewing inventory regularly, you can avoid stockouts and overstock situations. Additionally, understanding lead times and using Seller Central tools can fine-tune your ordering process.

Understanding Lead Times

Your supplier's lead time plays a big role in deciding when to place orders. This includes manufacturing, shipping to Amazon, and processing at FBA. Add in a buffer for unexpected delays. Adjust these buffers based on your supplier's past performance to reduce the risk of running out of stock.

Using Amazon's Tools

Seller Central's Restock Inventory tool is a powerful resource for planning. It takes into account:

• Historical sales trends

• Current stock levels

• Seasonal patterns

• Lead time requirements

The 'Days of supply' metric is particularly useful - it shows how long your inventory will last at the current sales rate. When this number gets close to your supplier's lead time (plus your buffer), it's time to reorder.

Customizing Replenishment Rules

Tailor your replenishment settings in Seller Central to fit your specific needs. Adjust parameters like:

• Case pack quantities to meet supplier minimums

• Replenishment frequency to align with your cash flow

• Lead time settings based on supplier reliability

Watching Market Signals

Stay alert to these indicators to adjust your order timing:

• Low stock alerts

• Sudden changes in sales velocity

• Seasonal demand shifts

"Just in Time (JIT) inventory is a management strategy that aims to improve efficiency and reduce waste by receiving goods only as they are needed in the production process." - Sell on Amazon

Keep an open line of communication with your suppliers about your projected needs. This ensures they can meet your timelines while maintaining quality.

10. Check Inventory Regularly

Keeping tabs on your inventory is key to staying accurate and in control of costs. Combined with earlier strategies, regular checks help you avoid mistakes and keep everything running smoothly.

Cycle Counting Made Simple

Try a cycle counting approach. Instead of counting everything at once, break it into smaller sections. For instance, if you have 1,000 SKUs, count about 50 items each week. You'll cover all your inventory in just 20 weeks without overwhelming your team.

Leverage Amazon's Tools

Amazon Seller Central has built-in tools to help you track inventory. The Amazon Fulfilled Inventory report, for example, gives you near real-time updates on stock levels across fulfillment centers. Automating these reports can make reconciliation much easier. Important fields to watch include:

• Seller SKU

• Fulfillment Channel SKU

• ASIN

• Quantity Available

• Warehouse Condition Codes

Set Up Regular Audit Routines

• Daily Checks: Quickly monitor fast-moving items to avoid stockouts.

• Weekly Reviews: Compare Amazon payment reports with your sales data for discrepancies.

• Monthly Counts: Focus on specific product categories for detailed checks.

• Quarterly Reviews: Assess overall accuracy and adjust your processes as needed.

Regular audits also help you catch issues like damaged goods when new shipments arrive.

Prioritize Quality Control

When new stock comes in, make sure to:

• Confirm quantities match your purchase orders.

• Check product serial codes for accuracy.

• Inspect items for damage or defects.

• Record any issues immediately to address them quickly.

Automate Inventory Management

Use inventory software to make your life easier. These tools can:

• Track stock movements in real time.

• Alert you to discrepancies.

• Keep financial records organized.

• Help with tax compliance.

Wrapping It Up

To thrive on Amazon, mastering inventory management is a must. By using the right tools, analyzing data, and keeping a close eye on your stock, sellers can improve efficiency and protect their profit margins.

Taking a data-driven approach helps you catch potential problems early - like avoiding extra fees or running out of stock. Inventory management isn’t a one-and-done task; it requires regular tweaks to keep stock levels and costs in check.

Here’s what successful sellers focus on:

• Smart Stock Control: Use automated tracking tools to avoid stockouts or overstocking, both of which can hurt profits.

• Performance Monitoring: Keep your Inventory Performance Index (IPI) score high to unlock better storage limits and selling advantages.

• Cost Management: Balance storage expenses with demand by turning over stock efficiently and clearing out excess inventory.

Did you know? Businesses with more than 25–30% dead stock often struggle to stay competitive.

Stay ahead by adjusting to factors like:

• Seasonal demand swings

• Supplier lead time changes

• Shifts in market trends or customer preferences

• Fluctuating storage costs

• Return rates and how efficiently they’re handled

These strategies highlight the importance of consistent tracking and smart planning. Combine these methods with Amazon’s tools and strong supplier partnerships to set yourself up for long-term growth and profitability.

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