Inventory management is one of the most crucial aspects of running a successful Amazon business. It involves planning, organizing, and controlling your inventory to meet the demand of your customers and the expectations of Amazon.
Inventory management can have a significant impact on your sales, profits, cash flow, customer satisfaction, and account health. If you manage your inventory effectively, you can avoid stockouts, overstocking, storage fees, long-term storage fees, and account suspension. You can also optimize your inventory turnover, replenishment, and forecasting.
How Amazon Controls Your Inventory When Selling
As an Amazon seller, you may have experienced some situations where Amazon holds your inventory when selling. This means that Amazon temporarily restricts your access to your inventory, either by preventing you from sending more inventory to their fulfillment centers, or by delaying the release of your inventory to your customers.
There are several reasons why Amazon may hold your inventory when selling, such as:
- Capacity limits. Amazon may impose capacity limits on your account, based on your inventory performance index (IPI) score, which measures your inventory health and efficiency. If your IPI score falls below a certain threshold, Amazon may limit the amount of inventory you can send or store at their fulfillment centers, to optimize their space and resources.
- Quality issues. Amazon may hold your inventory when selling if they detect any quality issues with your products, such as defects, damages, counterfeits, or safety hazards. Amazon may also hold your inventory if they receive any complaints or claims from your customers or other parties regarding your products. Amazon may inspect, test, or dispose of your inventory, or ask you to provide proof of authenticity or compliance, to ensure your products meet their standards and policies.
- Legal issues. Amazon may hold your inventory when selling if they encounter any legal issues with your products, such as intellectual property infringement, tax liability, or regulatory violation. Amazon may also hold your inventory if they receive any requests or orders from law enforcement or government agencies regarding your products. Amazon may remove, return, or destroy your inventory, or ask you to provide any relevant information or documentation, to comply with the law and protect their interests.
How Amazon Manages Your Inventory for You
As an Amazon seller, you may have heard of the term vendor managed inventory (VMI). VMI is a supply chain management strategy where the vendor (in this case, Amazon) takes charge of managing the inventory of the retailer (in this case, you). This means that Amazon decides when, how much, and what products to order from you, based on their demand forecasts and inventory data.
There are several benefits of using VMI on Amazon, such as:
- Reduced inventory costs. By using VMI, you can reduce your inventory costs, such as storage fees, holding costs, and inventory depreciation. Amazon will only order the products that they need, when they need them, and store them at their fulfillment centers. This way, you can avoid overstocking or understocking your products, and optimize your inventory turnover and cash flow.
- Increased sales and profits. By using VMI, you can increase your sales and profits, as Amazon will ensure that your products are always available and visible to their customers. Amazon will also use their marketing and pricing strategies to promote and sell your products, and handle the order fulfillment and customer service for you. This way, you can reach more customers and generate more revenue, while saving time and resources.
- Improved customer satisfaction. By using VMI, you can improve your customer satisfaction, as Amazon will deliver your products to your customers faster and more reliably. Amazon will also offer their customers various benefits, such as free shipping, prime eligibility, and easy returns. This way, you can enhance your customer loyalty and retention, and boost your reputation and ratings.
How Amazon Tracks Your Inventory for You
As an Amazon seller, you may have wondered how Amazon tracks your inventory for you. Tracking your inventory is essential for managing your inventory effectively, as it helps you monitor your inventory levels, sales, and performance, and make informed inventory decisions.
- Barcodes. Amazon uses barcodes to identify and track your products throughout their fulfillment process. Amazon requires you to label your products with either manufacturer barcodes or Amazon barcodes, depending on your product category and condition. Amazon scans your barcodes when they receive, store, pick, pack, and ship your products, and updates your inventory records accordingly.
- Sensors. Amazon uses sensors to measure and track your inventory in their fulfillment centers. Amazon uses various types of sensors, such as weight sensors, cameras, lasers, and RFID tags, to detect and record your inventory movements and locations. Amazon also uses sensors to automate and optimize their inventory operations, such as sorting, stacking, and retrieving your products.
- Reports. Amazon provides you with various reports to track your inventory for you on your Seller Central dashboard. Amazon offers various types of reports, such as the Inventory Dashboard, the Inventory Performance Index, the Inventory Health Report, the Manage Excess Inventory Report, the FBA Inventory Age Report, and the FBA Inventory Reconciliation Report. These reports can help you track your inventory status, performance, and health, and provide you with recommendations and actions to improve your inventory management.
How to Manage Your Inventory Effectively on Amazon
Inventory management is essential for running a successful Amazon business. It involves planning, organizing, and controlling your inventory to meet customer demand and Amazon standards. Here are some tips to manage your inventory effectively on Amazon:
- Know your inventory metrics. These are indicators of your inventory performance, such as inventory level, turnover, sell-through rate, days of inventory, and inventory age. They can help you identify and solve inventory problems, and make informed inventory decisions.
- Use the inventory reports. These are reports that Amazon provides on your Seller Central dashboard, such as the Inventory Dashboard, the Inventory Performance Index, the Inventory Health Report, and more. They can help you monitor and improve your inventory status, performance, and health.
- Use the inventory tools. These are tools that Amazon offers, such as the Restock Inventory tool, the Restock Report, the Restock Suggestions, the Inventory Planning tool, and more. They can help you plan, replenish, and optimize your inventory, and adjust your pricing strategies.
- Use third-party tools. These are tools that can help you manage your inventory more effectively, such as Jungle Scout, Helium 10, AMZScout, SellerApp, and AutoDS. They can help you analyze your inventory data, such as sales, revenue, competition, demand, trends, keywords, and more. They can also help you automate your inventory tasks, such as ordering, tracking, syncing, and updating your inventory.
- Use the inventory methods. These are methods that suit your business model and goals, such as the FIFO, LIFO, average cost, or specific identification methods. They can help you calculate your inventory cost, value, and profit, and determine your tax liability and cash flow.
- Use the inventory strategies. These are strategies that can help you optimize your inventory management, such as the JIT, MOQ, EOQ, safety stock, or ABC analysis strategies. They can help you reduce your inventory costs, risks, and waste, and increase your inventory efficiency, quality, and customer satisfaction.
How to Deal with Inventory Issues on Amazon
Inventory management can be challenging on Amazon, and you may face some inventory issues, such as:
- Stockouts. This happens when you run out of inventory and can’t fulfill orders. This can lead to lost sales, lower rankings, negative feedback, and account suspension.
- Overstocking. This happens when you have too much inventory and can’t sell it fast enough. This can lead to higher storage fees, long-term storage fees, inventory depreciation, and cash flow problems.
- Inventory discrepancies. This happens when your actual inventory and your recorded inventory don’t match. This can lead to inaccurate inventory reports, incorrect inventory decisions, and inventory losses.
To avoid and solve these inventory issues, you should:
- Avoid stockouts. You should forecast your demand, replenish your inventory, and monitor your inventory levels. You should also use Amazon’s inventory tools and reports to prevent stockouts and optimize restock quantities and dates. If you face a stockout, you should apologize to customers, offer refunds or replacements, and restock quickly.
- Avoid overstocking. You should analyze your sales velocity, inventory turnover, and seasonality. You should also use Amazon’s inventory tools and reports to manage your excess inventory and improve your pricing and promotion strategies. If you face an overstock, you should lower your prices, offer discounts or coupons, create bundles or multipacks, or remove your inventory from Amazon.
- Avoid inventory discrepancies. You should track, sync, and reconcile your inventory. You should also use Amazon’s inventory tools and reports to detect and fix any inventory discrepancies. If you face an inventory discrepancy, you should investigate the cause, correct the error, and update your inventory records.
How to Master Inventory Management on Amazon in 2024
Inventory management is a key factor for your Amazon business success. It affects your sales, profits, cash flow, customer satisfaction, and account health. To manage your inventory effectively on Amazon, you need to follow the best practices and use the right tools and techniques. These include knowing your inventory metrics, using the inventory reports and tools that Amazon provides, using third-party tools that can help you analyze and automate your inventory, using the inventory methods that suit your business model and goals, and using the inventory strategies that can help you optimize your inventory management.