Most Amazon sellers want better rankings, more sales, and higher profits. How you manage inventory has a huge impact on all three.
Fail to take inventory seriously, and you're looking at:
- Unexpected stockouts.
- Slow moving products.
- Waste and spoilage at every turn.
All creating a poor overall experience that both your customers and Amazon won't look kindly at.
So in this post, we cover Amazon inventory management from A-Z. You'll learn all the systems, techniques and automations (for a variety of product types) that go into a highly profitable Amazon inventory.
Table of Contents
- What is Amazon inventory management?
- Storage options: FBA vs FBM
- Multichannel Amazon inventory
- Replenishing Amazon inventory
- Key Amazon inventory management techniques
What is Amazon inventory management?
Amazon inventory management is the process behind having the right amount of inventory, in the right place, at the right time in order to fulfill Amazon orders. This involves sourcing, forecasting, replenishing and tracking all your stock.
How well you do this plays a big role in overall customer experience. Affecting:
- Product reviews.
- Seller rating.
Two things that then have a huge direct impact on how favorably you're seen by Amazon's search algorithm.
Managing your Amazon inventory can be relatively straightforward. But becomes more complicated as orders increase, and as you potentially start selling on multiple Amazon marketplaces and sales channels.
Storage options: FBA vs FBM
For the purposes of this guide, we'll assume you already have a store. And that sourcing or manufacturing products has already been taken care of.
So the first Amazon inventory management decision to make is where and how you're going to store that inventory of products.
For that, you have two broad options:
- Fulfillment By Amazon (FBA).
- Fulfillment By Merchant (FBM).
Let's quickly run through the good and bad for both.
Fulfillment By Amazon
FBA is where you send products to an Amazon Fulfillment Center. You manage your seller account and decide what to sell and when to replenish stock, but Amazon handles the storage and fulfillment side of things.
- Easy Prime badge.
- Easy "Subscribe & Save" option.
- Amazon fully handles fulfillment for you.
- Lower shipping rates than most self-fulfillment carriers.
- FBA storage fees for every SKU and item.
- Long-term storage fees for larger, slower moving products.
- Shipping stock to FBA centers can be complicated.
Fulfillment By Merchant
FBM is where you fulfill Amazon orders through your own means. You can list products to sell on Amazon, but are 100% responsible for fulfillment via either your own warehouse or a 3PL.
You can still manage FBM inventory in Seller Central, but it's highly recommended to use a more robust and scalable third-party Amazon software instead.
- More control of customer experience.
- Fewer fees.
- Higher, more scalable profit margins.
- Overheads of self-fulfillment.
- Hard to adhere to high standards of Seller Fulfilled Prime.
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Can you sell FBA and FBM?
Many Amazon sellers choose to mix and match between FBA and FBM - according to what's best suited for individual products or sales channels.
To do this, simply mark individual products as either FBM or FBA in your Seller Central account:
You can then fulfill these orders from inside Seller Central. Or sync both FBA and FBM orders into a tool like Veeqo to manage in one place and easily print shipping labels.
Multichannel Amazon inventory
Some retailers choose to sell exclusively on Amazon. But most will (either now or in the future) operate across multiple sales channels - such as Amazon US, UK, an eBay store and a Shopify website.
This is where Amazon inventory management can become particularly difficult.
Your options are:
- Use Multi-Channel Fulfillment (MCF) in Seller Central (FBA only).
- Use spreadsheets to track inventory.
- Use automated software to sync inventory everywhere in real-time.
Investing in the third option is the most scalable way of managing inventory for most businesses. (Unless you plan to always fulfill solely through FBA, or have very small daily order numbers.)
Veeqo, for example, lets you connect a range of platforms and marketplaces as individual stores:
You can choose to send orders for that channel straight to FBA:
Or route to specific warehouses of your own, with back ups to use if the original location is out of stock:
Stock levels are then updated in real-time across each store, warehouse and FBA location.
So if you make a sale on Amazon, it's instantly reflected everywhere else you sell. Meaning you'll never sell more than you actually have in stock - a common problem when using spreadsheets.
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Replenishing Amazon inventory
The actual process of replenishing Amazon inventory is very different depending on whether you're using FBA or FBM as a fulfillment method.
But the underlying principles remain the same.
Namely, that you need to decipher:
- When to place a new purchase order (i.e. each SKU's reorder point).
- How much new inventory to purchase at one time.
Or you can use conditional formatting to highlight reorder point in your spreadsheet:
But we'll use Veeqo's Purchasing Tools to make this process even easier.
Let's start by opening up one of our Veeqo products and going to the "Replenishment" tab.
From here, we can set each SKU's:
- Minimum stock (reorder point).
- Maximum capacity at that warehouse.
- Typical re-order quantity.
And will get an alert notice every time the minimum order quantities are hit:
We'll then create a quick purchase order, populate it with all products below their reorder levels and send off to suppliers:
We can even forecast how much stock we'll need for an upcoming period based on previous sales history.
Just head to Veeqo's inventory forecast report, select the upcoming period to cover and any predicted uplift or downturn:
You can still use the above techniques to calculate replenishment needs for your FBA locations.
But the actual act of sending inventory to FBA is slightly different as Amazon have certain requirements. You can see how to comply with them here.
Key Amazon inventory management techniques
At this point, we've discussed where you'll be storing and fulfilling Amazon orders from. And also when and how to replenish stock.
But here are few key general techniques to make your Amazon inventory management even more effective:
1) Visibility is everything
Having a clear view of your inventory as a whole is crucial. You need to know exactly where each unit is, and what stage of the fulfillment journey it's at.
Key types of inventory to be aware of are:
- Available. This is inventory that is fully available and 'ready for sale'. If someone bought it now, you could pick, pack and ship it to them instantly.
- Allocated. This is inventory that has been bought by a customer and allocated to a sales order, but hasn't yet been shipped out. It is therefore not eligible for sale again, and must be removed from the available inventory figure.
- Incoming. This is new inventory that has been purchased and is due in to a particular warehouse or location in the near future.
- In-transit. This is unsold inventory that is currently on the move, and so isn't available to be shipped to customers right now. E.g. stock being moved to another warehouse.
You can keep track of the status of your inventory like this using your spreadsheet, or in Amazon Seller Central.
Alternatively, a tool like Veeqo should track all this for every SKU, warehouse location, and sales channel:
2) Know your supplier lead times
Supplier lead time is the length of time it typically takes your suppliers to deliver newly purchased inventory.
It's best to be as precise with this as possible. So knowing the time specifically between:
- The point a new purchase order is placed; and
- the point at which new stock is added to 'available' inventory.
Lead time should include time taken for inventory to be booked-in and made ready for sale at your facility. For FBA, it may also need to include time for stock to be shipped to you for prep before forwarding to Amazon.
All this leaves you with more accurate reorder points, and therefore a reduced chance of having too much or too little stock on-hand at any one time.
3) Keep some safety stock
Safety stock is effectively backup stock you keep on-hand in case of emergency. This could be for a sudden, unexpected rise in demand, or general supply chain disruptions.
It can be quite important to keep safety stock if you order from suppliers abroad (like a manufacturer in China). Long, unreliable shipping times or delays at customs are quite common, meaning you could be left without stock for long periods without a healthy backup supply.
Look back over each SKU's sales data for the past 12 months, and decipher:
- The maximum daily sales you've had.
- The maximum lead time you've experienced.
- The average daily sales volume.
- The average lead time you've experienced.
Then plug it into this formula:
This will give you a calculated idea of the safety stock to keep for each product or SKU. Just remember to balance this with any overheads or FBA storage fees this creates.
4) Plan for seasonal fluctuations
It's important to note that safety stock is there as emergency backup. Not to cover seasonal fluctuations in demand.
This is why taking the time to properly forecast inventory is crucial.
Black Friday, Cyber Monday, Prime Day, the run up to the holidays, and any other key retail dates. These are all peak times for Amazon sellers.
In the short term, stocking out at these times can mean losing out heavily on sales opportunities. In the long term, Amazon may be more likely to rank and recommend other sellers above you who are able to better maintain inventory levels.
5) Know your sell through rate
Sell through rate is a key inventory analysis metric that shows inventory sold compared to inventory purchased over a given time period. It's usually expressed as a percentage:
This basically gives an indication of how quickly you're selling inventory. And therefore how quickly the choice to sell that product line is paying off.
Low sell through rates indicate you either:
- Overbought, and so need to improve forecasting/reordering.
- Got the marketing wrong, and so need to adjust pricing, product descriptions/images, rankings, etc.
Either way, sell through rate is a key metric to keep an eye on for individual product lines that you're selling on Amazon (and any other channel).
Amazon inventory management may seem pretty straightforward at first. You buy inventory, list it on Amazon, and ship it to customers when sold.
But complications occur as orders grow and you start selling on other channels. Complications that can be detrimental to your success if not addresses properly.
The guidance in this post should help you take control of your inventory - for Amazon and everywhere else you sell. Apply it as best you can, and make sure to upgrade to a third-party Amazon software when the time is right.