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Writer's pictureAkash Singh

Amazon Inventory Management - Strategies & Automation Tips for Success


Inventory management is one of the most crucial aspects of running a successful Amazon business, especially for sellers using Amazon FBA (Fulfillment by Amazon). Ensuring that products are always in stock, minimizing storage costs, and maximizing customer satisfaction are key goals that can be achieved through effective inventory management. Amazon inventory management is a critical component of running a successful e-commerce business, especially for sellers utilizing Amazon's Fulfillment by Amazon (FBA) service. 


As the global e-commerce market continues to expand, Amazon is expected to experience a substantial increase in inventory turnover. According to recent projections, global e-commerce sales are expected to surpass $7.4 trillion by 2025, with Amazon capturing a significant share of that growth. As a result, sellers who manage their inventory effectively by balancing stock levels, minimizing storage fees, and optimizing supply chains will be better positioned to capitalize on the increasing demand and heightened competition. Efficient Amazon inventory management will not only help businesses meet customer expectations but also improve profitability in an online marketplace. This blog will explore the different facets of Amazon inventory management, highlighting strategies, common challenges, automation tools, and tips for optimizing the process for success.



What is Amazon Inventory Management?


Inventory management refers to the process of overseeing and controlling the flow of goods from manufacturers to warehouses and, ultimately, to customers. In the context of Amazon, it involves keeping track of your products, ensuring they are stored properly, and maintaining the right amount of stock to meet customer demand.


Effective Amazon FBA inventory management is critical because it directly impacts the availability of products to customers, which in turn affects sales and customer satisfaction. Poor inventory management can lead to stockouts, overstocking, and unnecessary storage fees, all of which can hurt a seller’s bottom line.


Impact on product availability and customer satisfaction


Product availability is directly linked to customer satisfaction. If an item goes out of stock, customers will be unable to purchase it, which could result in a lost sale and a negative customer experience. Conversely, when products are consistently available for purchase, it helps build trust and ensures repeat business.


Amazon’s algorithm also rewards sellers with strong inventory management practices by making them more visible in search results. This makes it easier for customers to find their products. Sellers who keep their inventory well-stocked and maintain a reliable supply chain often experience a better ranking, which translates to higher sales.


Factors Influencing Inventory Management


Effective inventory management is not just about keeping track of products; several factors influence how you manage your Amazon inventory:


  • Supplier manufacturing times: If your suppliers experience delays or disruptions in manufacturing, inventory shortages can occur. Understanding supplier timelines and lead times can help you forecast better and avoid stockouts.


  • Shipping and lead times: Long shipping times can cause delays, whether you are shipping products to Amazon’s fulfillment centers or directly to customers. Factoring shipping times into your inventory planning will prevent you from running out of stock.


  • Market demand fluctuations: Seasonal demand or sudden changes in consumer preferences can challenge inventory planning. Sellers must be able to predict demand trends and adjust their orders accordingly.


Track and compare long-term performance with SellerMate.ai’s business reports feature. Analyze seasonal trends and Prime day, Big Billion day or holiday sales (Christmas) patterns to make informed decisions with comprehensive historical data. 



Key Challenges in Amazon Inventory Management



Despite the importance of good inventory management, there are several challenges that Amazon sellers face:


  • Running out of inventory


Running out of stock is one of the most detrimental things that can happen to an Amazon seller. Not only does it lead to missed sales, but Amazon’s algorithm penalizes sellers who frequently experience stockouts, which can harm visibility in search results. The key to avoiding stockouts is forecasting demand accurately and ensuring that inventory is replenished in time.


  • Overstocking issues and the impact on costs


While running out of stock is problematic, overstocking can be just as damaging. Overstocking leads to higher storage costs, especially with Amazon’s long-term storage fees. Excess stock also ties up capital, which could have been used for other business investments.


Moreover, overstocked inventory can become obsolete, especially for products with seasonal demand, leading to waste and additional losses. Balancing stock levels is essential to avoid both stockouts and overstocking.


  •  Stranded and aged inventory challenges


Stranded inventory refers to items that are stuck in Amazon's fulfillment centers because they are either unsellable or have no active listing. These products cannot generate revenue, but they still need to accrue storage fees.


On the other hand, aged inventory refers to products that have been sitting in a fulfillment center for an extended period without being sold. Aged inventory is typically subject to higher fees, which can eat into profits. Managing the age of your inventory and liquidating stagnant stock can help mitigate these issues.


  • High storage costs and spoilage


Amazon FBA charges storage fees based on the volume of products stored in their fulfillment centers. If you have products that are slow-moving or that sit idle for long periods, the storage costs can become prohibitively high. Spoilage is also a concern for perishable goods, especially if they are overstocked or have a short shelf life.


  • Low Inventory level fees

Starting April 1, 2024, Amazon will introduce a new low-level inventory fee for standard-sized products that consistently maintain low inventory about customer demand. According to Amazon, when sellers hold insufficient stock compared to historical sales, it limits Amazon's ability to distribute the products efficiently across its network, which negatively impacts delivery speed and raises shipping costs.


The low-inventory fee will be charged only if a product's inventory relative to historical demand (measured as "historical days of supply") falls below 28 days. This will apply when both the long-term historical days of supply (based on the last 90 days) and the short-term historical days of supply (based on the last 30 days) are below 28 days. For example, if a product’s short-term days of supply exceeds 28 days, but the long-term days of supply is below 28 days, the fee will not apply.


The historical days of supply will be calculated at the parent-product level, and the low-inventory fee will be added to the FBA fulfillment fee for each shipped unit of eligible products. A rate card outlining the fee structure is as shown below:


2024 size tier

Shipping weight

0-14 historical days of supply

14-21 historical days of supply

21-28 historical days of supply

Small standard

Up to 16 oz

$0.89

$0.63

$0.32

Large standard

Up to 3 lb

$0.97

$0.70

$0.36

Large standard

3+lb to 20 lb

$1.11

$0.87

$0.47




Effective Strategies for Inventory Management



To ensure smooth operations and minimize the risks mentioned above, adopting effective inventory management strategies is crucial. Here are a few effective strategies to help you manage your inventory better:


  • Maintaining strong supplier relationships


Building strong relationships with suppliers can help mitigate delays in manufacturing and shipping. Reliable suppliers ensure that products are consistently available and that lead times are predictable. Good communication with your suppliers can help you anticipate problems before they occur, allowing for proactive measures.


  • Balancing inventory levels for optimal supply


Finding the right balance between having enough stock and not overstocking is essential. Sellers should regularly assess sales trends and adjust inventory levels accordingly. One way to do this is by using inventory forecasting tools that analyze past sales data and predict future demand.


  • Reducing excess inventory through strategic sales


To prevent overstocking, Amazon sellers can utilize strategic sales, discounts, and promotions to move excess inventory. Running flash sales or bundling products together can help clear out slow-moving items and reduce storage costs.



Automation Tools for Amazon Inventory Management


Automation has revolutionized how Amazon sellers manage their inventory. Sellers can automate most of the tedious and time-consuming tasks involved in inventory management with the right tools. Here’s why you should utilize automation tools for inventory management:


Role of inventory management software


Inventory management software automates the process of tracking inventory levels, ordering products, and managing restocking schedules. These tools can also help you track supplier lead times and market demand fluctuations.


By using software that integrates with Amazon’s platform, sellers can streamline their inventory management processes, reduce human error, and ensure they are always prepared to meet customer demand.


Importance of automation in inventory tracking


Automation simplifies the tracking of stock levels in real-time. Instead of manually updating inventory counts, automation tools can do this automatically by syncing with Amazon’s system. It reduces the risk of errors such as overselling or stockouts.


Additionally, automation allows for better visibility across multiple fulfillment centers, enabling sellers to make more informed decisions regarding where to send inventory to minimize shipping costs and optimize stock levels.


Examples of popular software for automating inventory tasks


Several software tools are available to help automate inventory management for Amazon sellers, including:


  • TradeGecko (now QuickBooks Commerce): Helps track inventory, manage orders, and integrate with various eCommerce platforms, including Amazon.


  • Restock Pro: A tool specifically designed for Amazon sellers to automate the inventory forecasting process and manage restocking decisions.


  • InventoryLab: This tool is widely used by FBA sellers to track inventory, generate reports, and analyze profit margins.


Make the most of your online business through SellerMate.ai’s automation feature. It allows you to automate your competitor tracking and ad rank management, set up monthly export schedules for competitor data and automate bid adjustments to maintain your ad ranking.



Leveraging Amazon’s FBA Service


Leveraging Amazon’s Fulfillment by Amazon (FBA) service has become a game-changer for sellers looking to scale their businesses efficiently. FBA allows sellers to store their products in Amazon’s vast network of fulfillment centers, with Amazon handling the complexities of storage, packing, shipping, and customer service. This means that sellers can focus on growing their business while Amazon ensures fast and reliable delivery, often with Prime eligibility, which significantly boosts visibility and sales potential. Let’s dive deeper into the key advantages of using FBA, explore the importance of maintaining a strong Inventory Performance Index (IPI) score, and discuss how machine learning and automation within the FBA system can elevate inventory management to new heights.


  • Benefits of using FBA for inventory management


Using Amazon’s Fulfillment by Amazon (FBA) service offers significant benefits for inventory management. FBA allows sellers to store their products in Amazon’s fulfillment centers, where Amazon handles storage, packing, shipping, and customer service. It reduces the logistical burden on sellers and ensures fast and reliable delivery to customers.


FBA also offers Amazon Prime shipping, which can improve visibility and sales.


  • Understanding the Inventory Performance Index (IPI) score


Amazon uses an Inventory Performance Index (IPI) score to measure how well sellers are managing their inventory. The score is based on metrics like inventory turnover, stock levels, and aged inventory. Maintaining a high IPI score is essential for avoiding storage fees and improving product visibility.


Sellers with poor IPI scores may be restricted in the amount of inventory they can send to Amazon’s fulfillment centers, which can limit their ability to scale their business.


  • Using machine learning for advanced inventory management


Amazon leverages machine learning algorithms to predict demand and optimize inventory distribution. By analyzing historical sales data and external factors such as market trends, these algorithms can help sellers ensure that they are always stocked with the right products at the right time.


The Role of Technology and Robotics


The integration of technology and robotics has transformed inventory management in once unimaginable ways, and Amazon has been at the forefront of this revolution. By utilizing cutting-edge technologies, Amazon has optimized its fulfillment operations to achieve unprecedented speed and accuracy. These advancements not only enhance operational efficiency but also provide sellers with powerful tools to manage their inventory more effectively. Let’s explore how robotics and technology are reshaping Amazon's fulfillment centers, the role of automation in improving inventory tracking, and how these innovations are benefiting for sellers.


  • Integration of robotics in Amazon fulfillment


Amazon uses advanced robotics in its fulfillment centers to enhance efficiency and speed. Robots help sort, package, and transport products within the warehouse, significantly reducing the time it takes to fulfill orders. This helps ensure that inventory is processed quickly and accurately, improving overall inventory management.


  • Enhancing efficiency through technology


Technology plays a central role in improving inventory management. From automated tracking systems to machine learning algorithms, technology enables Amazon sellers to stay ahead of demand, avoid stockouts, and optimize storage costs.


  • Collaboration between humans and robotic systems for better results


While robots handle many tasks, human oversight is still essential for making strategic decisions. Combining the speed and accuracy of robots with the decision-making abilities of humans can lead to more efficient and effective inventory management.



Tips for Optimizing Inventory Management



Optimizing inventory management is essential for Amazon sellers who want to maximize efficiency, minimize costs, and ensure a seamless customer experience. Effective inventory management goes beyond just maintaining the right stock levels, it requires careful planning, forecasting, and leveraging automation tools to stay ahead of demand fluctuations. Let’s dive into practical tips for optimizing inventory management, from planning for unexpected supply chain disruptions to adjusting pricing strategies for low inventory levels. 


  • Planning for unexpected supply chain disruptions


Unexpected disruptions, such as shipping delays, natural disasters, or supplier issues, can cause stockouts. Having contingency plans and building buffer stock can help you weather these disruptions and keep your business running smoothly.


  • Using pricing strategies to manage low inventory levels


When inventory levels are low, adjusting pricing strategies can help manage demand. Raising prices slightly can slow down sales and stretch available stock, while offering discounts or flash sales can help move excess inventory quickly.


  • Incorporating lead times into inventory planning


Including lead times in your inventory planning is essential for avoiding stockouts. By understanding how long it takes to manufacture and ship products, sellers can ensure that their inventory is replenished in time to meet demand.


Summing Up

Effective Amazon inventory management is crucial for maintaining smooth operations and ensuring customer satisfaction. By leveraging strategies such as balancing inventory levels, maintaining supplier relationships, and utilizing automation tools, sellers can enhance their inventory management processes and reduce the risk of running out of stock or overstocking. Automation and advanced technology, including robotics and machine learning, can further improve efficiency and accuracy, giving sellers a competitive edge.


To succeed on Amazon, sellers must embrace these inventory management best practices and integrate technology to streamline processes, reduce costs, and more effectively meet customer demands. By doing so, they can optimize their Amazon FBA inventory management and unlock long-term business growth.


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FAQs


Q1. How can I reduce excess inventory on Amazon?


Ans- Reducing excess inventory on Amazon can be done through several strategies. Regularly analyzing your inventory using tools like Amazon’s Inventory Health Report and adjusting your stock levels based on trends and seasonal demand can help keep excess inventory at bay.


Q2. Can I track my inventory on Amazon?


Ans- Amazon provides various tools for tracking your inventory, such as the "Manage Inventory" section in Seller Central, where you can view your stock levels, sales history, and restock recommendations. Additionally, Amazon offers automated tools like the "Restock Inventory" tool and integrations with third-party inventory management software.


Q3. How can I forecast demand for my Amazon inventory?


Ans- Accurately forecasting demand is critical to avoid stockouts or overstocking. To forecast demand, you should analyze historical sales data, consider seasonal trends, monitor competitor activity, and factor in market changes. Amazon provides tools such as the "Restock Inventory" tool to help you predict when to reorder products. 


Q4. What is Amazon’s "Inventory Replenishment" feature?


Ans- Amazon’s "Inventory Replenishment" feature, available in Seller Central, helps you track the quantities of products that need to be restocked. It provides recommendations based on your sales velocity, historical data, and lead time, helping sellers replenish inventory at the right time to avoid stockouts. 


Q5. How do I remove unsellable inventory from Amazon’s fulfillment centers?


Ans- If your inventory is unsellable or you no longer want to store certain items in Amazon’s fulfillment centers, you can use Amazon’s "Remove Inventory" tool in Seller Central. This allows you to either dispose of the unsellable inventory or have it returned to you.



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