Have you
ever been
excited to try a new product only to find the dreaded “out of stock” icon when you
go to place the
order online? Did you remember to check back to purchase that product or did you
just go find a
similar product elsewhere? As an ecommerce business owner, proper inventory
management can help
prevent missed sales opportunities like this and keep customers coming back.
Inventory
management is
the process of tracking and storing products to meet customer demand quickly and
efficiently. It
applies to how you source, store, and process products to get them ready for sale.
The
inventory
management process
There are
several
stages in the ecommerce inventory management process. From stocking products to
fulfilling
customer orders, each step is key to help keep your business humming: receive and
inspect your
products, sort and stock products, accept customer orders, fulfill packages and ship
orders, and
reorder new stock.
1.
Receive and
inspect your products
First,
your raw goods
and products are delivered to your facility or warehouse. After the order arrives,
inspect the
products, making sure product quantity and serial codes are correct, and that there
aren’t any
irregularities or defects.
2.
Sort and stock
products
After
receiving and
inspecting products, store them in your warehouse and note them in your tracking
system so you can
easily see what you have in stock. You can organize products based on SKU or product
type.
3.
Accept customer
orders
You’ve
made a sale! Now
it’s time to process orders through a point-of-sale system or an
inventory-management system.
4.
Fulfill
packages and ship orders
As soon as
possible,
pack and ship orders. Consider your product’s packaging needs and
fulfillment options so your
product arrives safely and on time.
5.
Reorder and
manage existing stock
Minimize
the risk of
having too much, too little, or no stock, which can result in profit loss or a poor
customer
experience. Certain inventory-management systems can also automate the reordering
process so you
don’t have to worry about replenishment. They can also help you predict future
demand to optimize
stock levels for holidays and key sales moments like Black Friday.
Proper
inventory
management takes time, but will help increase your store’s performance and customer
satisfaction.
The results of poor inventory management may not show up for weeks or months, but
when they do, it
can be ugly: dead stock, high storage costs, unfulfilled customer orders, and damage
to your
reputation. Additionally, storage fees, holding costs, or the inability for
customers to place
orders can decrease your profitability.
What
are
inventory-management systems?
Inventory-management
systems track products from procurement to shipment. An inventory-management system
can help you
make critical business decisions such as how many units you need, your optimal
inventory levels,
when to reorder items, and which products to liquidate or remove.
The right
inventory
system can give you a realistic picture of what stock you have available to sell and
help you run
your business efficiently. An inventory system can be a manual count and ledger, a
spreadsheet, or
an automated digital solution.
When an inventory-management the system works
correctly, you
know what products you have available at a glance, along with important metrics like
available
shelf space, the amount of units in stock, and the precise storage location of
individual
products.
Inventory
management benefits
Inventory
management
helps ensure there is rarely too much or too little stock on hand, limiting the risk
of running
out of stock or paying to store stock in warehouses that you aren’t selling. It
helps you save
money, improve cash flow, and meet the needs of your customers.
Here are
several benefits
of efficient inventory management.
1.
Reduce
warehouse costs and improves cashflow
Buying the
right amount
of products at the right time to fulfill customer orders can reduce the cost of
storing excess
inventory or missing out on sales opportunities. You can also improve your cash flow
by paying
your suppliers on time and avoiding penalties or fees.
Warehouse storage
costs include the
rent, utilities, maintenance, security, insurance, labor, equipment, and software to
organize and
track your inventory. Inventory management optimizes the use of your storage space,
reduces the
risk of stranded or dead inventory, and increases the efficiency of your operations.
Learn the lingo:
Stranded
inventory and dead stock
Stranded
inventory: Sellable inventory that may be in a fulfillment center
or warehouse but
isn’t listed for sale on your site
Dead stock:
Merchandise that's never
been sold to a customer. It often cannot be returned to the supplier because
it's outdated, out
of season, or has little to no demand.
2.
Improve
fulfillment efficiency
Accurate
inventory
helps avoid out-of-stock items, overstocks, and misplacements. It also optimizes
warehouse layout,
storage, and replenishment that helps cut down on
fulfillment
and travel time.
Learn the lingo:
Overstock and
misplacements
Overstock: When a business buys more of a product than it
sells
Misplacements: When recorded items in your stock
are placed in the
wrong rack or aisle. Misplaced inventory may occur when items aren't monitored
and recorded
in-stock after arriving at the warehouse.
3.
Create a
positive customer experience
Shipping
delays,
errors, and out-of-stock products can cause customer dissatisfaction and harm your
reputation.
Knowing how much inventory you have on hand and fulfilling orders swiftly helps meet
customer
needs and expectations when they place an order.
4.
Prevent
inventory aging
“Inventory
aging” is a
term used to describe items in a warehouse that are not selling quickly or at their
full retail
price. Inventory management can help prevent this by tracking sales velocity,
forecasting demand
accurately, and improving stock replenishment.
5.
Create
efficient reordering
An
automatic reordering
system will simplify the inventory tracking process. It can automatically order
products as they
run low, which avoids the risk of losing track of which products have been ordered
and which ones
haven't.
6.
Detect problems
early
Auditing
your inventory
regularly helps fix inventory errors and discrepancies, and it can detect problems
early. Be sure
to inspect your products when they first arrive for defects, and check your actual
inventory
against your system records.
Inventory control
techniques for selling with Amazon
Inventory
control is
the process of ensuring you have the right amount of products to fulfill customer
orders.
Optimizing your inventory is necessary for understanding how much product you have
at any given
moment, when to expect your next shipment, and how to fulfill customer orders
quickly. Amazon
offers several solutions to get your inventory and fulfillment under control.
Fulfillment by
Amazon (FBA)
Fulfillment by Amazon (FBA) lets you
outsource order fulfillment to Amazon. When a customer makes a purchase on Amazon,
we pick, pack,
ship, and handle customer service and returns. Shipping with FBA costs 30% less per
unit than
standard shipping options offered by major US carriers and 70% less per unit than
their premium
options comparable to FBA.
FBA can not only help you
lower
costs, but it can save you time so you can focus on growing your business. You can
also use FBA
programs like
Subscribe &
Save to help to increase sales and secure repeat customers. Or use
Buy with Prime to offer the Amazon
experience on your other sales channels.
Fulfilled by
Merchant
Fulfilled by Merchant is a
suite of Amazon solutions that helps you save time and money when you fulfill
customer orders
yourself.
Use tools and automation to sync your inventory and streamline the
orders you
receive from Amazon, as well as
other sales
channels. Get great shipping rates and offer customers fast, reliable
delivery while
enjoying increased account-health protection for delivery-related claims.
Supply Chain by
Amazon
Supply Chain by Amazon is a fully
automated set of supply chain services that gets your products from manufacturers to
customers
around the world. It’s a complete end-to-end solution that includes programs like
FBA and
Multi-Channel Fulfillment
(MCF). Supply Chain by Amazon keeps products in stock, automates inventory
replenishment,
provides faster and more reliable shipping, and can significantly lower costs.
Multi-Channel
Fulfillment
Multi-Channel Fulfillment
(MCF) lets you outsource fulfillment for orders placed on your websites or
another sales
channel. With MCF, we use your pooled FBA inventory to provide fast, low-cost, and
reliable
fulfillment for multiple ecommerce channels.
For sellers who sell across
multiple channels
and websites, Amazon provides a free software called
Veeqo
that syncs and tracks inventory across channels, locations, and FBA. When you make a
sale on one
channel, Veeqo makes sure your inventory levels are reduced across all your
channels, preventing
overselling.
Common
inventory
problems and how to avoid them
Having
stock on hand is
a must for a product-based business. But inventory can also hurt your business if
mismanaged. As
your ecommerce business grows, poor inventory tracking can lead to:
- Excess inventory
- Low stock levels
- Stranded or dead stock
- Spoilage
- High storage costs
Let’s
explore these
common inventory problems and some ways you can avoid them.
1.
Excess
inventory
Having
enough stock to
ship out customer orders quickly is a good thing—but having too much inventory can
cost
you.
Excess inventory can tie up resources and run up storage costs. Aside
from incurring
unnecessary fees, you may be unable to respond quickly to shifts in customer demand,
while aging
inventory could force you to liquidate.
Amazon offers an
excess inventory calculation report through FBA
We
evaluate product
demand, price elasticity, seller costs, and seller inputs to help ecommerce
sellers manage their
inventory effectively.
Amazon
considers you to
have excess inventory if you have:
- Over 90 days of supply
- At least one unit aged over 90 days
- A better ROI opportunity (such as
reducing the
price to increase sales)
Ensure you
have about
two months of supply available, are selling your products in a timely manner, and
are
exploring opportunities to
increase sales to help you earn a return on your investment and avoid
storage fees.
Learn the lingo:
Sell-through
rate
Sell-through rate
is a measure of how well you are balancing your inventory levels and sales. It’s
calculated by
dividing the number of units sold by the number of units received.
The FBA
sell-through
rate is a measure of how well you are balancing your FBA inventory. For Amazon
sellers, it’s
updated daily in a Seller Central dashboard. Whether you use FBA or not, a high
sell-through rate
can show you carry popular, fast-selling items.
2.
Low stock
levels
On the
flip side, it’s
essential to have enough inventory in stock to meet customer demand. Low stock
levels can hurt
your sales and brand reputation. No one likes to order an item only to find it’s out
of
stock.
The right inventory level for your business may depend on seasonality,
sales
history, or customer demands. Run a demand-planning analysis to arrive at the
optimum inventory
level.
3.
Stranded or
dead stock
Stranded
inventory is
sellable inventory that may be in a fulfillment center or warehouse but isn’t listed
for sale on
your site. It hurts your business because it ties up your cash. You paid for the
products and are
paying for storage, but customers can't buy.
Stranded inventory leads to lost
sales,
storage costs, and lost storage capacity. As an Amazon seller, you can easily track
and
fix
stranded inventory through Seller Central.
4.
Spoilage
Some
products like
food, supplements, and cosmetics have sell-by or expiration dates. When you hold
inventory past
its sell-by date, your investments go down the drain.
Tracking your products
through a
system can help you avoid spoilage, allowing you to run promotions or discounts on
items at risk
of spoiling in the near future.
5.
High storage
costs
Optimizing
your storage
space can help you lower costs and stock fast-selling items. Not tracking your
inventory can lead
to higher costs for storage, removals, and liquidations. Even if you use a
third-party inventory
management system, you still want to track how much inventory you have in storage to
avoid
incurring unnecessary costs.
Use an inventory system to track info like:
- What you have in stock
- How your inventory is aging
- Optimum inventory levels
This type
of tracking
will go far to help you avoid high storage costs.
7
inventory
management best practices for ecommerce sellers
Achieve
profitability,
scalability, and sustainability by improving inventory management for your ecommerce
business.
Here are some tips to help you run your business smoothly and efficiently.
1.
Conduct regular
inventory audits
By doing
regular
audits, you're able to catch issues before they become an even bigger problem. This
also ensures
inventory is at the right level.
As a rule of thumb, you should conduct
inventory audits
at least one to two times a year. If you can audit quarterly—even
better.
Cycle counting is
a process that requires you to count a small amount of your inventory at a specific
time, usually
on a set day, without handling your entire stock in one go. It can be a more
manageable way to
ensure your inventory is accurate and up to date at all times.
2.
Implement an
inventory-management system
Having an
inventory-management system in place ensures you’re able to fulfill incoming or open
orders and
increase profits. It helps:
- Track your inventory so you know how
much you have
and what you need
- Control costs
- Improve delivery speed
- Aid in planning and forecasting
- Reduce time spent on inventory
management
There are
many software
options out there to choose from. Be sure to select a system that:
- Syncs with your order fulfillment or
selling system
- Provides demand forecasting
- Alerts you when items are running
low
- Allows quick and easy barcode
scanning
- Tracks all relevant product
information
3.
Build and
maintain relationships with suppliers
Your
suppliers are
vital stakeholders in your business. Your success can help their business too. Here
are a few ways
to sustain healthy relationships with suppliers:
- Pay your bills on time.
- Treat your suppliers with respect.
- Communicate frequently and
regularly.
- Offer constructive feedback.
- Build goodwill by referring
business.
Promote
positive
interactions with the key players in your supply chain to get the right products on
time and
anticipate any manufacturing or shipment issues.
4.
Sync inventory
across multiple online platforms
Multi-channel inventory
systems can help you scale your business by making it easier to sell across more
channels. Tools
automatically sync your sales and inventory so you have more time to expand to new
selling
platforms and reach new customers. This also helps avoid overselling and
underselling across
multiple platforms.
Amazon's
Multi-Channel
Fulfillment (MCF) has an inventory management system,
Listing
Mirror, that helps prevent these issues by synchronizing inventory levels
across multiple
channels.
5.
Automate order
fulfillment and tracking
Ecommerce
businesses
can reduce the risk of errors and improve inventory accuracy with an automated
fulfillment system,
like FBA, that automatically updates inventory levels in real time, tracks sales and
purchases,
and generates accurate reports.
6.
Manage returns
and reverse logistics
How your
business
handles returns is just as important as fulfilling products you’ve sold.
Reverse logistics
moves goods from customers back to the seller or manufacturer. Once an item is
received, it can
include product repairs and maintenance, refurbishing or remanufacturing defective
items, or
repackaging products.
When managed properly, reverse logistics can help
improve customer
satisfaction and build customer loyalty, reduce costs by recycling and reusing
material, generate
revenue, and improve your brand's reputation. With FBA, you can make it easier by
outsourcing
customer returns to Amazon.
7.
Reduce excess
inventory and restock popular products
Avoid sunk
costs (money
that has already been spent and cannot be recovered) by marking down prices or
creating special
deals to liquidate aging inventory or overstock products.
Stocking popular
products and
tracking how many days of supply you have on hand can also help your business stay
profitable.
Monitor sales and gauge past order quantities to plan how much inventory you need
throughout the
year. Keep enough backup units to ensure you won’t run out of inventory due to
supply chain
mishaps.
Learn the lingo:
Sunk costs
The
phrase “sunk
costs” refers to money you have already spent and can’t recover. If stock sits
on the shelf for
over three months, you may not be able to recover the expenses you’ve incurred
in acquiring and
storing the item.
“Amazon’s inventory
management tools use world-class machine learning algorithms to create
customized restock
strategies, taking into account current inventory levels, restock preferences,
supply chain
constraints, and anticipated demand.”
FBA
Inventory
Optimization Team
How
does Amazon
inventory work?
When
sellers
choose to
use FBA, they automatically gain access to Amazon’s machine learning-based
inventory-management system. This system uses inputs like the cost of goods sold,
shipment time,
and other Amazon data to forecast customer demand and set optimum inventory levels.
Amazon’s inventory
management tools can help you manage stock efficiently
For FBA
sellers, Amazon
offers a suite of inventory-management tools right in Seller Central. These tools
help
entrepreneurs and ecommerce businesses
manage
their FBA inventory efficiently and offer faster order
fulfillment.
The
Inventory
Performance Dashboard in Seller Central sends an alert when stock quantities
are running low
and provides demand planning and forecasting to suggest recommended inventory levels
and shipment
timelines. The dashboard displays essential inventory information such as
sell-through rates,
aging stock alerts, and recommended actions to optimize storage.
Automatically
track how well you manage your inventory with Amazon
Inventory
performance
is a measure of inventory management and replenishment. The
Inventory
Performance Index (IPI) is a metric for Amazon sellers that measures how
efficiently they
manage their FBA inventory—similar to a credit score for inventory efficiency.
Improve your
Inventory Performance Index score to minimize storage costs
Your
Inventory
Performance Index (IPI) score is based on how well you:
- Replenish popular products
- Maintain healthy inventory levels
- Fix listing problems
Just as a
high credit
score will give you benefits, so will a high inventory score. Keep your IPI score
high to lower
storage costs and make more profit.
Streamline
inventory management and reduce costs with FBA
FBA helps
businesses
manage inventory in one place, without the need for additional software. It offers a
free suite of
inventory management tools for ecommerce business owners.
You can access
this suite of
tools through the
Seller Central
dashboard or the
Seller App on your
smartphone.
Along with daily inventory and storage reports, Amazon uses
machine learning
models to provide data-driven recommendations through features such as:
- FBA Restock Tool
- Inventory Performance Index
- Inventory Age Report
There is a
lot to learn
about inventory management, but by starting with these tips and best practices you
can reduce your
costs, increase customer satisfaction, and keep your ecommerce business running
smoothly.
Amazon programs like FBA are also here to help remove the guesswork and
provide you with
the inventory tools that you need to keep you business healthy.
How do you measure to see if you are
successfully
managing inventory?
There are several
ways to measure your inventory management. One of the most common
methods is looking at your
sell-through rate to ensure you’re balancing inventory levels with
sales. You can calculate
this by dividing the number of units sold by the number of units
received.
What’s the difference between order
management and
inventory management?
Order management
refers to how you receive and process customer orders. Inventory
management refers to how
you manage products through your storage facility or warehouse.
Integrating your order
management and fulfillment management systems and processes can help you
run your business
smoothly.
What is supply chain management?
The supply chain
is the combined network of people and processes that take an item from
the raw materials to
a final delivered product.
Supply chain management is how you
manage your process
for acquiring or creating products up until the products are sold.
What’s the role of the supply chain in
relation to
inventory management?
Inventory
management is part of the supply chain and refers to overseeing the
process of acquiring
products for sale.
The supply chain affects many aspects of your
inventory, including
sourcing quality items at a lower cost, shipping times, and increasing
positive customer
reviews to help build your brand and ecommerce business.