As the world’s second-largest marketplace, behind only China’s Alibaba, Amazon is a place where merchants can quickly make a small fortune with the right set of tools, and products that sell, of course. However, one of the key ingredients is inventory management and if you don’t have control of the stock on your shelves, you can set yourself up for huge losses.
If you don’t understand just how vital inventory management is to your success, just think about all the customers you are likely to lose to competitors if they keep being confronted with that dreaded “Out of Stock” message. In other words, beyond marketing, the way to succeed at Amazon is to get control of your inventory, and that means an aggressive approach to inventory management. Here are five ways to come out the winning end on Amazon.
1. Get Real-Time Analysis with Inventory Management Software
In business, there is one cliché that you should always live by. Time really is money and if you want to use your time effectively, inventory management software can be your best friend. Why would you spend the better part of a day counting and tallying your stock by hand when each time a product is sold or returned, it would automatically be registered in that software you will come to rely on.
Platforms like Refundly, a service for Amazon seller refunds, automatically detects any missing units during an audit so that you can apply for a credit with the supplier. This is the type of software you need to effectively manage your inventory and the beauty of it is, it works automatically in the background while you continue doing other tasks that need your attention. Refundly is a SaaS, Software as a Service, and as it is fully integrated with Amazon. It’s perhaps the most user-friendly inventory management software you can use.
2. Weigh Current Inventory Against Forecast Sales
Next on the agenda is to go back over figures from previous months. How many units have you sold in the past 30, 60 or 90 days? Based on a pattern that emerges, how many units do you expect to sell given market variables you also adjust for? Those variables could be major holidays, with Christmas being the biggest.
The key is to get a realistic projection of merchandise you expect to sell in the next period. However, how you set that ‘period’ is going to be defined on the next step towards inventory management. That would be lead time, which is nothing more than the time it takes to restock your shelves from the moment you place an order.
3. Calculate Lead Time
Calculating lead time might be a bit tricky because there are variables here as well, the first being the location of the supplier. If you are going to order a product manufactured in China, you would need a good idea as to how long it will take that stock to reach you. Will it be traveling by air or sea? How long can you expect your merchandise to be tied up at customs and from there, once released, how long will it take to get to you?
These are all very important aspects of inventory management because you can’t let your shelves go empty! As mentioned above, being out of stock is one of the most common reasons for losing customers to the competition, and often the reason for being out of stock is not having a handle on lead time.
4. Flag a Reorder Point into Your Inventory Management Software
Sometimes, merchants combine flagging a reorder point with the safety stock they are comfortable holding, and other times they work independently of each other. Safety stock is discussed in more detail below. What you need to know about that important reorder point is that you need to lean heavily on lead time.
If you know, for instance, that you sell 100 units per month of any given product and that it takes approximately 4 to 6 weeks to reach you from China, you’d set the reorder point much higher than you would when expecting delivery from a U.S. based supplier. The key takeaway here is that reorder points are always reliant on the location and transport time between the distributor and your warehouse.
5. Set a Safety Margin
Sometimes referred to as a ‘buffer,’ every successful merchant always has safety stock set aside for those times when an unexpected rise in sales occurs. While you do your best to project how many units you will sell in a given timeframe, you probably aren’t a gifted prophet! You can give your best guestimate of future sales based on sales history and a careful analysis of the market, but there will be times when you miss the mark.
This is a point where you need to question whether you have enough cash on hand to merit a huge investment in what you forecast sales to be in the upcoming period. Remember, although analysis is a science, forecasting goes beyond those figures you’ve worked so hard to calculate. One small dip in the economy could leave you with shelves full of products you are unable to move. This is why most successful Amazon sellers suggest a safety stock margin of 25%. In other words, once you’ve set a reorder point and programmed your software to flag you when you reach that point, you have an additional 25% of projected sales on hand ‘in case’ there are any glitches in the ordering process.
Putting It All Together
As you can see, there is more to being an Amazon merchant than meets the eye. It is a highly competitive marketplace and the one thing that can make or break your business is inventory control. Too much inventory you can’t move constitutes a loss but being out of stock also boils down to a loss. Understanding this end of the business can take some getting used to but with technology advancing by the day and the availability of SaaS platforms like Refundly, you can basically run those routine tasks in ‘autopilot’ while you continue to actively monitor the market. The key to success on Amazon is managing your inventory without going over budget or running out of stock prematurely. That’s the magic formula in a nutshell.