Efficient inventory management is the cornerstone of running a successful Amazon FBA business. As an Amazon third-party seller, you need to ensure that you have enough stock to meet demand while avoiding costly storage fees for overstocked or slow-moving products. This balancing act can be challenging, especially with the complexities of Amazon’s inventory management and storage policies.
In this comprehensive guide, we’ll cover everything you need to know about managing your FBA inventory and storage efficiently. From using Amazon’s inventory management tools to strategies for reducing long-term storage fees, we’ll provide actionable insights to help you optimize your FBA operations, save money, and ensure your business runs smoothly.
Why Effective Inventory Management is Important for Amazon FBA Sellers
Proper inventory management is essential for the following reasons:
- Avoid Stockouts and Lost Sales: Stockouts can lead to lost sales and lower your product’s ranking in Amazon’s search results. When customers can’t find your product in stock, they may turn to competitors.
- Minimize Excess Inventory: Overstocking results in increased storage fees, especially long-term storage fees for products that remain unsold for over 365 days.
- Optimize Cash Flow: Tying up too much capital in unsold inventory can strain your cash flow and limit your ability to invest in new products or marketing.
- Maintain Account Health: Inventory issues such as consistent stockouts can negatively impact your account health and your eligibility for programs like Amazon Prime and the Buy Box.
- Reduce Fulfillment Costs: Amazon’s storage and fulfillment fees are a significant expense for FBA sellers. Efficient inventory management can help you reduce these costs and protect your margins.
Now, let’s dive into how you can effectively manage your Amazon FBA inventory and storage.
Step-by-Step Guide to Managing Your Amazon FBA Inventory and Storage
1. Use Amazon’s Inventory Management Tools
Amazon provides a variety of inventory management tools within Seller Central to help you track stock levels, forecast demand, and optimize your inventory. Here are some essential tools you should use:
Inventory Performance Index (IPI)
The IPI score measures your inventory health and management efficiency. It’s based on several factors, including excess inventory, stranded inventory, sell-through rate, and in-stock rate. Maintaining a high IPI score is crucial because a low score can result in storage limitations.
- Check Your IPI Score: Navigate to Performance > Inventory Performance in Seller Central to view your IPI score.
- Improve Your IPI Score: To improve your score, address stranded inventory, ensure high sell-through rates, and avoid overstocking.
Restock Inventory Tool
The Restock Inventory Tool helps you estimate when and how much inventory you should send to Amazon’s fulfillment centers. It uses data on your historical sales, lead times, and future demand to provide recommendations.
- Access the Restock Inventory Tool: Go to Inventory > Inventory Planning > Restock Inventory.
- Set Restock Limits: Use this tool to set restock alerts and avoid stockouts.
Manage Excess Inventory
The Manage Excess Inventory tool helps identify products that have excess stock, making it easier to take action, such as creating a removal order or running a promotion to clear out surplus inventory.
- Access the Manage Excess Inventory Tool: Go to Inventory > Manage Inventory Health > Excess Inventory.
Using these tools effectively can help you maintain optimal inventory levels and avoid unnecessary fees.
2. Monitor Inventory Levels Regularly
Regularly monitoring your inventory levels is crucial for preventing both stockouts and overstocking. Implement these strategies to stay on top of your inventory:
Set Up Inventory Alerts
Set up inventory alerts in Seller Central to receive notifications when stock levels drop below a certain threshold. This allows you to take action before a product goes out of stock.
- How to Set Up Alerts: Go to Settings > Notification Preferences and set up alerts for inventory levels, restocking recommendations, and more.
Use Inventory Management Software
Consider using third-party inventory management software like RestockPro, InventoryLab, or Sellbrite to track stock levels across multiple channels and streamline your inventory management processes.
Monitor Inventory Health Reports
Amazon provides several inventory health reports that give you insights into stock levels, sell-through rates, and other critical inventory metrics. Regularly review these reports to identify issues and opportunities for improvement.
- How to Access Inventory Health Reports: Go to Reports > Fulfillment > Inventory Health Report in Seller Central.
3. Optimize Your Replenishment Strategy
Proper replenishment planning ensures that you maintain the right stock levels without tying up too much capital in inventory. Follow these best practices:
Forecast Demand Accurately
Use historical sales data and seasonality trends to forecast demand accurately. Amazon’s Inventory Planning Tool can help you estimate future demand based on past sales performance.
- Account for Seasonality: Consider seasonal fluctuations in demand, such as increased sales during holidays or specific times of the year.
- Monitor Trends and Market Changes: Use tools like Helium 10 or Jungle Scout to analyze market trends and adjust your inventory levels accordingly.
Set Safety Stock Levels
Safety stock acts as a buffer to prevent stockouts in case of unexpected demand spikes or delays in replenishment. Calculate your safety stock levels based on your lead time, demand variability, and desired service level.
Create Replenishment Alerts
Set up replenishment alerts to get notified when it’s time to send more inventory to Amazon’s fulfillment centers. Use the Restock Inventory Tool to automate this process and ensure timely replenishment.
4. Manage Stranded and Unfulfillable Inventory
Stranded inventory refers to products that are stored in Amazon’s fulfillment centers but are not linked to an active listing, making them unsellable. Unfulfillable inventory consists of products that are damaged, defective, or otherwise unsellable.
Address Stranded Inventory
To resolve stranded inventory issues:
- Go to Inventory > Manage Inventory > Stranded Inventory in Seller Central.
- Identify the reason code for the stranded inventory and take corrective action, such as relisting the product, correcting listing errors, or creating a removal order.
Handle Unfulfillable Inventory
If you have unfulfillable inventory, create a removal order to have the items returned to you or disposed of by Amazon. This helps you avoid storage fees for unsellable products.
- Go to Manage Inventory and select the items you want to remove.
- Click Create Removal Order and follow the prompts to complete the order.
5. Avoid Long-Term Storage Fees
Amazon charges long-term storage fees for products that remain in fulfillment centers for more than 365 days. To avoid these fees, use the following strategies:
- Use the Inventory Age Report: Check the Inventory Age Report in Seller Central to identify products that are nearing the 365-day mark.
- Run Promotions or Discounts: Offer discounts or promotions to move slow-selling inventory.
- Create Removal Orders: If you cannot sell the inventory, consider creating removal orders to avoid long-term storage fees.
6. Use FBA Inventory Reports for Better Decision-Making
Amazon provides several FBA inventory reports that can help you make data-driven decisions about your inventory. Use these reports to gain insights into your inventory performance and identify areas for improvement:
- Inventory Age Report: Shows the age of your inventory and identifies items at risk of long-term storage fees.
- Restock Inventory Report: Recommends when and how much inventory to send to Amazon’s fulfillment centers.
- Inventory Health Report: Provides a comprehensive overview of inventory metrics such as excess units, sell-through rate, and estimated sales.
7. Implement Inventory Management Best Practices
In addition to using Amazon’s tools and reports, follow these best practices to optimize your inventory management:
Maintain a Balanced Inventory
Avoid both stockouts and overstocking by maintaining a balanced inventory. Use historical sales data and demand forecasting tools to determine the optimal stock levels for each product.
Set Up Automatic Replenishment Systems
Automate your inventory replenishment process using Amazon’s automated tools or third-party software to reduce manual work and improve efficiency.
Monitor Sell-Through Rate
The sell-through rate measures how quickly your inventory sells over a given period. A high sell-through rate indicates that your products are moving quickly, while a low rate may indicate overstocking. Aim for a high sell-through rate to minimize storage costs and improve profitability.
8. Plan for Seasonal Demand and Sales Events
Seasonal demand and sales events like Prime Day, Black Friday, and Cyber Monday can cause significant fluctuations in your inventory levels. Plan for these events by analyzing past sales data and forecasting demand increases.
- Increase Inventory Ahead of Time: Ensure you have enough inventory to meet increased demand during peak seasons.
- Monitor Performance Post-Event: After a major sales event, review your inventory performance to assess stock levels and restock as needed.
9. Reduce Removal Costs with Strategic Inventory Management
Creating removal orders can be expensive, especially if you have a large quantity of unsellable or slow-moving inventory. Reduce removal costs by implementing the following strategies:
- Avoid Overordering: Order inventory based on accurate demand forecasts to prevent excess stock.
- Run Clearance Sales: Offer clearance sales or promotions to move unsold inventory instead of incurring removal costs.
- Bundle Slow-Moving Items: Bundle slow-moving items with popular products to increase their chances of selling.
10. Consider Multi-Channel Fulfillment (MCF) to Optimize Inventory Usage
If you sell on multiple platforms like Shopify, eBay, or your own website, consider using Amazon’s Multi-Channel Fulfillment (MCF) service. MCF allows you to use your FBA inventory to fulfill orders from other platforms, helping you maintain optimal inventory levels and reduce storage costs.
Conclusion: Efficiently Manage Your Amazon FBA Inventory and Storage
Managing your Amazon FBA inventory and storage effectively requires a combination of using Amazon’s tools, implementing strategic planning, and regularly monitoring inventory performance. By following the steps outlined in this guide, you can optimize your inventory levels, reduce costs, and ensure a healthy, profitable FBA business.
If you need help managing your Amazon FBA inventory or optimizing your e-commerce strategy, Marketplace Valet is here to support you. Our team specializes in Amazon marketplace management, inventory optimization, and digital marketing to help brands succeed on Amazon. Contact us today to learn how we can help you streamline your FBA operations and achieve your business goals!
