Amazon Inventory Management: Maximize Your Sales and Prevent Stockouts

Rick Wong 22 November 2020

Hey Amazon sellers! In case you didn’t know, running out of stock is not good for your Amazon product listing. Amazon Inventory Management Forecasting is important. If you run out of stock, the rank of your product listing may fall. Once rank falls, your sales velocity may also suffer. How far your rank falls is a function of the length of your stock-outs, how long have your listing been active and selling, and the level of competition in your niche. This is one of the reasons why you need a proper Amazon inventory management system.

What is Amazon Inventory Management?

Being one of the top online shopping sites, Amazon has established a reliable inventory management system. This allows its sellers to make the last mile shipment as a service. This inventory management system is called fulfillment by Amazon, also known as Amazon FBA.

Amazon FBA is a non-compulsory facility. Amazon offers this across all their supported marketplaces. It focuses on the management of inventory, packaging, shipping, and last-mile delivery. We highly recommend that you use this system as it can truly help set you free from worrying order fulfillment. In fact, Amazon permits even 3rd party inventory and shipping. Regardless, FBA is still your best and most reliable option. Considering that you can offer prime shipping (1-2 days) and better relative search page ranking with Amazon FBA.

How to Set Up Your Amazon Inventory

First off, you need to register for a Professional selling account. After setup of your seller account, you may choose the FBA option. You can then start using Amazon’s inventory management system. Here’s a step by step guide that can help you set up your Amazon FBA:

1. Inventory Placement Option

In Amazon Seller Central dashboard, go to SettingsFulfillment by Amazon SettingsInbound Settings. Click “edit” and on the Inventory Placement Option: select “Inventory Placement Service”. By selecting this service, you will only need to send your inventory into just ONE warehouse. This option saves time, money, and effort.

2. Add Your Product Listing

In Amazon Seller Central dashboard, go to Manage Inventory ➜ Click “Add a Product”. For additional information on adding a new product listing, please see our comprehensive listing optimization guide here.

3. Set Your Product Listing to Amazon FBA

Staying on the Manage Inventory screen, select your listing ➜ Action ➜ select Change to Fulfilled by Amazon. Select this option, it means your listing supports Amazon FBA as a fulfillment method.

Amazon Inventory Management Changing listing to FBA

4. Prep Your Inventory for Amazon FBA

Make sure to follow all Amazon FBA prepping guidelines here. Ensure each piece is labeled with the FNSKU and country of origin. Also, make sure that each carton box must be labeled with the given FBA carton label.

The good thing about Amazon FBA is that it goes beyond just fulfillment services. It maximizes customer satisfaction by providing customer service. They have an efficient tracking system for the customer to carefully track their orders by using a code. They also have a back office to maintain good customer relationships. The staff frequently checks customer feedback on all products sold on their website. Amazon customer support is available 24/7 for inquiries, refunds, returns, and order tracking. You are definitely in good hands if you let Amazon manage your inventory.

How much does FBA cost?

There are a few fees within the Amazon FBA bucket. First is FBA Fullfment Fees, which are charged per order shipped from an Amazon FBA warehouse.

Amazon Inventory Management FBA fulfillment fees

The other type of Amazon FBA fees are the FBA Storages fees.

Amazon Inventory Management FBA storage fees

How to Avoid Running Out of Stock

As mentioned, running out of stock can take a toll on your sales and the performance of your product listing. The good thing is, you can avoid running out of stock by doing the following:

1. Know your average daily sales velocity

The average daily sales velocity is a measure of how fast/slow your product gets sold. If you are selling a new product, you may compute this by taking note of the number of stocks/orders you have from your supplier, and the number of days it took to sell half of those orders.

Sample velocity calculations:

If you have 100 units of your product and you were able to sell them 50 units in 10 days, the average daily sales velocity is 5 units per day.

50 units / 10 days = 5 units (Your sales velocity)

Average daily sales velocity may change depending on the demand for the product. You can adjust your inventory management based on the movement of your sales velocity.

2. Know your lead time

Your lead time depends on the number of units you are ordering from your supplier. The higher the number of units, the longer the lead time needed. You also need to factor in the shipping time. And more importantly, you have to add buffer days to cover any possible problems in customs, courier delays, and other unforeseen factors. Typically, 30 days of lead time are enough to cover the manufacturing, shipping, and buffer days. 

3. Know when to reorder and how many units to order

Once you’ve figured your daily sales velocity and the lead time, you may already start computing the number of units that you should order at a given time of your analysis.

(Lead time x daily sales velocity) + a safety buffer

Sample Computation:

Based on the examples above, we may assume that we have 30 days lead time, average daily velocity is 5 units and a safety buffer of 10 units so the advisable number of units to order is 160 units.

Inventory Management Reorder Calculation
(30 days x 5 units) + 10 units = 160 units

4. Be aware of upcoming seasonal sales fluctuations

The sales of businesses usually increase during the fourth quarter because of the holidays. Considering the increase of demand during this time, you must be able to plan ahead the amount of stock you need to order as well as the time you need to allot to be able to get these stocks on time. While under ordering may result to customer dissatisfaction once products ordered is out of stock, it’s also good to note that overordering may cause unnecessary costs for storage and shipping. Not all products are in high demand during Christmas so please do your research.

5. Be aware of special holidays that may affect your supply

An important factor that may be neglected is taking note of special holidays that your supplier/manufacturer may encounter. If your supplier is from a different country, their holidays and operational working days may differ from yours. This may have an effect on your lead time, so be sure to plan ahead and research on their holidays as well.

How to Remove Inventory on Amazon

Given the cost implications of having an inefficient storage system, removing inventory on Amazon warehouses may save you money especially if your products do not sell. Here’s a quick guide on how you can remove your inventory on Amazon:

1. Close your product listing

The first thing you can consider is temporarily or permanently removing your product online. To temporarily remove your product, you may “close” a product listing. The product will be removed from the storefront and will be tagged as inactive on the inventory page. All details and information regarding sales history and product information will still be accessible, and the listing can be activated anytime.

This can be done in the Manage Inventory tab on your Amazon Seller Central account. Select Manage Inventory/Listing, then click on the Actions button. Choose between “Close Listing” or “Delete Product and Listing.”

To permanently remove your product, you may “delete” a product listing. The product is removed from the inventory page. The details and information regarding sales history and product information will also be deleted from your account. Only take this option if you can guarantee you’ll never sell that product again. There are only 24 hours for you to reactivate that listing.

2. Create a removal order

You can create a removal order once the product is no longer on your inventory page. It’s either you do it in the Manage Inventory tab or from the Recommended Removal report (for inventory subject to long-term storage fees). On the Manage Inventory page, choose to Create Removal Order, and choose from Dispose or Return. When you dispose of the products, you will allow Amazon to get rid of your products and charge a fee for each item they dispose of. When you choose to return the products, they will be shipped back to you. It is more costly to have the products shipped back to you than to dispose of your inventory, you need personally weigh the pros and cons of each option

After creating a removal order, an order ID is generated for you to track the order. When you choose to return the products, you also need to give your address for delivery. If you have other SKUs for the product, you can also add the details to also have them removed. There’s a total quantity available for removal, it’s possible that there will be items available and unavailable for removal.

3. Confirm the removal order

Processing may take around 10-14 days upon the confirmation of the removal order but expect around 30 working days for complete processing.

Amazon FBA offers an automated removal process for products that are already incurring long-term storage fees. Every 15th of the month, Amazon takes stock of inventory in their warehouses, and the automated option refrains sellers not to incur additional storage fees. These products are now unfulfillable. Amazon FBA notifies sellers that they are unsellable, and will most likely be disposed. This can be done in your Amazon Seller Central account by going on the Settings menu clicking on Fulfillment by Amazon. You may select Automated Unfulfillable Removal Settings, click Edit, click Enable, choose from Return or Dispose and then select a schedule – Immediate, Weekly, or Twice a month.

Additional Tips in Improving the Way You Manage Your Inventory

Here are a few more things that can help you improve the way you manage your Amazon inventory:

1. Keep an eye on supply and demand fluctuations.

Adjusting your orders based on the demand patterns can help you manage your inventory better. It can also help you avoid unnecessary costs for storage. Having the right amount of stock at a specific period of time-based on supply and demand is a must. Clearly communicating with your supplier can also help prevent delays in manufacturing and shipment.

2. Be strategic on your timing.

Amazon is a global company that allows you to trade across countries. Therefore, the timing of stock orders and shipping and the amount of time your stock stays in Amazon FBA’s warehouse are critical factors in your success.

3. Take a time out.

One of the best strategies to consider when running out of stock is taking a time out from accepting orders. You wouldn’t want to disappoint existing customers or potential customers for not delivering their orders on time, so it’s better to pause to restock your inventory.

4. Using a 3PL to optimize cost

A 3 PL stands for 3rd party logistics. Basically, they would be a non-FBA warehouse that can prep, receive, and ship inventory. 3PL can be a cost-efficient way to manage your inventory, cause let’s face it, Amazon FBA can be quite costly, especially during Q4 seasons. You can use a 3PL such Deliverr to optimize your logistics further.

Final Thoughts

Amazon inventory management can be time-consuming, but it can provide a great long-term impact in your business. Aside from helping improve your logistics and operations, proper Amazon inventory forecasting can also help you retain customers and increase your sales.

If you have questions or insights to share, please feel free to post them via the comments section. Please also consider joining our Facebook Group where we discuss any questions you may have about running an Amazon business.

We are SellerMetrics, our Amazon PPC Software helps Amazon sellers, brands, KDP Authors and agencies navigate Amazon Advertising PPC via bid automation, bulk manual bid changes, and analytics.




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