Amazon FBA Inventory Management and Planning
Every Amazon seller knows that picking the right products is only one piece of the puzzle to having a successful ecommerce company. Even if you have the most wanted products on Amazon, without proper inventory management, it can all be for naught.
Luckily, AMZScout helps even with inventory management. The unique Amazon web app allows for ASINs to be tracked. When first doing product research, tracking competitor products will show you in a more precise way how many sales you can expect, and help show the seasonality of a product.
Inventory management, at its core, is simple. Projecting how many items will sell on a day to day basis allows for you to project needs accordingly. The math comes in when factoring in lead time from a manufacturer, processing time at Amazon facilities, shipping time, and changes in demand.
If your product is Fulfilled By Amazon (FBA) they will provide some general estimates on suggested order amounts. These need to be taken with a grain of salt, as they are not as accurate as your own numbers need to be. When you are creating your own estimates, there are two different phases: new products and established products. New products involve much more extrapolation of data, while established products can be done largely formulaically.
Amazon has also recently raised their charges for long-term storage. This means that, whenever possible, it is important to have enough inventory to avoid running out, but not so much that you’ll be saddled with long term fees. These get expensive quickly, especially when combined with the rising rates for regular storage. To manage this, a seller should strive to be as close as possible to “Just in Time,” inventory management, both within their own location (if it exists) and with their FBA inventory.
An Example of Inventory Planning…
The example below will show what can be used for a new product. Basically, you use the prior three months (if that data exists) to make a linear projection of future data. This is a rough estimate, but is often the best we can do. In the case below, the line of best fit shows a monthly growth of 100 sales. We use this to project sales for August-December. We also have a column that highlights total inventory, lead time from the manufacturer, and shipping time. As we can see, the total lead time is thus four months.
Based on this, we can see that we would run out of our current inventory sometime in December. This means we need to order roughly four months before early December…RIGHT NOW! This is why inventory management is important. Once lead time is considered, we often have to order inventory much more quickly that we would expect on our own.
When looking at a product that has been around at least a year, I instead base projections on a simple formula: (Sales previous three months/Sales same three months last year) *Month we are projecting…So if we sold 1000 pieces the last three months, and sold 500 the same three months last year, when projecting each upcoming month we would double last year’s sales. This helps to account for year over year long term growth of a product.
Utilize Tools for Inventory Planning
New seasonal products are a different animal entirely. Luckily, we have the AMZScout Web App to help us. We can look at other close competitors and use there expected growth and apply it to our own sales, by adding those products to the product tracker. If our closest competitors sell three times as many items in November and December as their average, we will expect that same ratio to work for us, and adjust our formulas accordingly. We can see the sales history by clicking on the icon shown circled in red. We can use this data to then inform our own decisions.
Most of this work can be done on spreadsheets. Once created once, they can simply be updated with new products and new data, to make it less time intensive.
One important thing to note is that sales projections must use sales RATES rather than just sales data. This is only important if a product has run out of inventory in the past, which hopefully you can avoid altogether. But when a product does run out of stock, its sales rate should be used to calculate expected total sales. So if an item sold 200 pieces in 15 days in a month, you would have expected it to sell 400 pieces over the course of a full month.
Working with inventory management can be time consuming, but is a vital piece of any Amazon business. It allows your successful products to remain successful, and maximizes the profits that your online business can bring you. By paying attention to inventory in the early stages, you can begin to automate some of those processes down the line. Not only will this help you to make more money, it will help you to have more free time! This extra time allows you to live the dreams that pushed you to become an online sales company. All of these tools are complemented by the AMZScout Chrome Extension and Web App. These tools are invaluable in the hunt to find and maintain successful products and make your dreams of fiscal freedom a reality!