Inventory Management for Amazon

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Purpose

This lesson is all about managing your inventory when you’re selling on Amazon.

Two Main Rules of Inventory Management

When managing your inventory, there are two rules you want to follow:

1.    Don’t Run Out

When you’re just starting out it’s a little tough to estimate how many units you’re going to sell, because Amazon doesn’t give you that data, so it’s perfectly fine if you run out. However, once you’re up and running, you never want to run out of inventory because you’re not making any money while you’re out. Also, your rankings can drop a little bit. If your ranking drops, It won’t be like you’re starting back at zero, but you will have to build that ranking back up again.

2.    Don’t Order Too Much Inventory

Inventory management is a little bit of art and a little bit of science. Ordering too little may cause you to run out and unable to fulfill orders, but if you order too much inventory, then that’s cash that is tied up in inventory. Learn to balance between the two.

Inventory Lead Time

inventory lead time is the time it takes from you ordering your inventory from the supplier to the time it is literally available for sale. To manage your inventory well, you’re going to need to know your inventory lead time. You will need to know all aspects of this process, including:

•    calling your supplier

•    your supplier putting the order in their system

•    preparing the products for sale

•    shipping the products to where they are going to be fulfilled

•    if using FBA, then accounting for the time it takes Amazon to process the inventory

# of Units Sold per Day

The next step is to look at how many units you are selling per day. This is pretty easy to look at in Amazon. Once you know how many units you’re selling each day, you can calculate how many days of inventory you have left. For example, if you’re selling 10 units per day and you have 100 units in stock, then you know you have approximately 10 days of inventory left. Now, if you figure out that your lead time is 14 days, then you’re going to have 4 days when you’re out of inventory.

When you’re calculating how many days of inventory you have left, you’re going to have to take into account holidays and other factors like that. For example, the days before Christmas may be a big time for your product to sell because people buy products like that for gifts. On the other hand, in a different market those may be horrible sales days for your product because people don’t buy that type of product as gifts. So, watch for big spikes and dips in sales and average that into your calculations so you get an accurate idea of the number of days of inventory that are remaining.

Placing More Orders

When you’re ready to place more orders with your supplier, be sure to consider the following:

•    Know the quantity discounts you can get

Often if you can order just a few more units, you may drop into a different price tier with your supplier and save on your entire order. So, you may have a little bit more inventory in stock, but you save a lot of money and you will make more money, per unit sold

•    Every 2-3 times you re-order, ask your supplier for a discount

When you save even as little as 10 cents per unit, that will add up over time and really makes you more money in the end.

 

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