4 Effective Strategies for Amazon Inventory Management

One thing we see many Amazon sellers struggle with is inventory management. And it’s no surprise as to why. This part of your ecommerce business is all about the numbers and that’s not everyone’s cup of tea. So, what are the best strategies for Amazon inventory management?

First off, managing your inventory IS going to be essential for the long-term success of your online store, so it can’t be ignored. One way or another, you need to get your head around it.

You need to understand that effective inventory management goes way beyond simply stocking products. The focus is to optimise the entire supply chain so you can reduce your costs, experience fewer stockouts and provide better customer satisfaction.

Ecommerce Intelligence aims to help sellers optimise their operations and master inventory management. We show them how they can use simple strategies and tools to effectively meet customer demands while maintaining a balanced inventory. Let’s show you how.

1. Forecast demand accurately

One extremely key area of inventory management is the ability to forecast demand. 

It’s simple, really. If you guess too high, you’re stuck with stuff no one wants in an overstock. Guess too low, you’ll be in a stockout and your customers will be forced to go elsewhere. Both ways, you lose money. 

So how do we do accurate demand forecasting? Oddly enough, it’s not rocket science and using your historical sales data is a great place to start. Look at previous data, market trends and any spikes then consider season specific patterns. Remember, seasonal variations such as Black Friday can affect your demand, so plan accordingly. Basing your inventory decisions on statistics and market trends is the only sure-fire way to forecast the correct stock levels for the correct level of demand.

Thankfully, there’s some decent advanced forecasting software on the market which includes tools for statistical analysis and machine learning. These tools effortlessly enhance the accuracy of demand forecasting and are capable of quickly processing large amounts of data, analysing past trends and effectively predicting future demand. They see patterns that us mere humans might miss.

We’ve spent years analysing market data for Amazon sellers and we’re good at making sense of it. So, if you’re looking to get a head start on predicting demand accurately, we have a bunch of tailor-made solutions that can help you on your merry way.

2. Optimising Inventory Levels

Why is optimising your inventory levels so important? 

It’s all about balance. Maintaining optimal inventory levels is crucial because it helps balance the cost of storing too much product against the risks of not having enough to meet customer demand. Effective inventory management ensures that you have enough stock to fulfil orders without overcommitting resources to excess inventory that might incur high storage costs.

There are a couple of solutions when it comes to inventory management.

Just-In-Time (JIT) involves ordering and receiving inventory only as needed to fulfil customer demand. While this method may not be suited to all products, it does help reduce storage costs as well as minimising the risk of overstocking.

Economic Order Quantity (EOQ) is basically a systematic formula used to calculate the most cost-effective quantity to order at any one time. By establishing your EOQ, you find a sweet spot where your ordering costs and holding costs are as low as possible. This way, you have just enough inventory to sell without wasting money on extra storage.

Whichever way you’re managing inventory, it’s super important to know when to reorder and how much extra stock to keep just in case. Think of reorder points as a reminder to buy more before you run out. 

Calculate your reorder points by checking how quickly items sell and how long it takes new stock to arrive. For safety stock, it’s the extra items you keep to avoid running out if there’s a sudden sales spike or a delay in delivery. It’s like having a cushion so you’re always prepared, ensuring you don’t lose sales from unexpectedly running low.

3. Utilising Amazon’s Inventory Management Tools

When using Amazon’s FBA service (Fulfilment by Amazon), you gain access to their advanced inventory management system.

These inventory management tools use the power of machine learning algorithms and ai along with certain data sets such as shipment times and cost of goods sold. This then gets added to Amazon’s sales data in order accurately forecast customer demand.

Among these tools is what’s called an Inventory Performance Index (IPI) score. Pay close attention to this as it’s basically what Amazon uses in order to evaluate how well you manage your inventory. Do well here, and you’ll start to see some perks.

Your IPI score is directly impacted by how quickly you restock your best selling items, how well you maintain healthy stock levels and looks at your ability to promptly address listing issues. 

A higher API score (<400) can start to provide a range of benefits to sellers including lower storage fees, additional storage capacity in Amazon Fulfilment centres, the ability to expand product offerings, and the ability to provide faster shipping options to your customers.

Using these tools is designed to simplify and enhance the way sellers manage their stock. 

While FBA manages the logistics of storage, packaging and shipping, the IPI provides some pretty awesome insights into inventory health by tracking and analysing key metrics like sell through rates, excess inventory and stockouts.  

Armed with all this data, Amazon sellers can make more informed decisions on to optimise their inventory levels which subsequently reduces costs and improves sales efficiency. 

If you’re not currently using Amazon’s inventory tools and would like to know how they could drastically increase the success of your store, Ecommerce Intelligence could offer a solution. For many years and have gained proficiency in working with Amazon’s and FBA’s inventory management features to further benefit sellers.

4. Implementing efficient storage solutions

Storage is essential to online retailers. But efficient inventory management isn’t just about what you store, its about where and how you store it.

Proper storage solutions are important for a number of obvious reasons. For staters, you need a safe, controlled environment where your products are easily and readily available for shipment. Fast fulfilment is a key factor in ecommerce, and reducing errors through organised storage helps improve shipping times and overall customer satisfaction.

But there’s a little more to it than just having somewhere to store your products. There are a couple of proven strategies when it comes to storage which can significantly impact your inventory efficiency.

First-In-First-Out (FIFO): This method ensures that the oldest stock (first in) gets sold first (first out), which is especially important for perishable goods or products that can become obsolete, like fashion or technology.

Last-In-First-Out (LIFO): On the other hand, LIFO involves selling the most recently received items first. One key benefit is its tax advantage in environments of rising prices which can be particularly beneficial for certain businesses and those selling certain non-perishable goods.

If you’re at a loss on where to start with storage facilities, Ecommerce Intelligence can help and has been successfully assisting Amazon sellers for many years.

To conclude…

Strategic and consistent inventory management isn’t just about avoiding errors. It’s about staying on top of your game in the competitive world of Amazon selling. 

Think of it as a way to keep everything running smoothly, from costs to customer happiness. 

Doing this consistently and with a good strategy means you’re always ready, whether it’s a busy holiday season or a slow summer. It helps keep your customers happy and your business healthy.