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Inventory Management: The Hidden Achilles’ Heel for Brands on Amazon

In the competitive arena of Amazon, maintaining optimal inventory levels is not just a logistical concern—it's a strategic imperative. Brands often underestimate the profound impact that stockouts can have on their operations, not realizing that it is, arguably, the most significant cost they face.

This article delves into the multifaceted nature of stockouts, examining their causes, consequences, and strategies for effective management.

Understanding the Causes of Stockouts

At the heart of many stockout issues lies the failure to accurately account for lead times and external factors such as holidays and logistical delays. For instance, the lead time from the factory, including the production and shipping of goods, must be carefully calculated. Seasonal holidays, especially significant ones like Chinese New Year, can drastically alter production and shipping schedules, leading to unexpected delays.

Furthermore, upon arrival at Amazon's warehouses, goods undergo a check-in process before being available for Fulfillment by Amazon (FBA). This additional lead time can further complicate inventory planning.

The Strategy of Maintaining 8 Weeks of Stock

To circumvent the newly implemented low inventory fee by Amazon, brands are advised to maintain at least 8 weeks of stock within Amazon's ecosystem. This buffer stock acts as a safeguard against unexpected stockouts and the subsequent financial penalties.

The Far-reaching Consequences of Stockouts

Stockouts extend their impact beyond mere lost sales for the days the product is unavailable. They erode a brand's ranking on Amazon, making the journey back to previous sales levels an uphill battle. This phenomenon is visually represented by the accompanying graph, illustrating the tangible growth dips corresponding with 2 periods of stockout and the subsequent recovery period.

The first stockout was for longer and took longer to come back from, still getting to old levels after 2 months. The second stockout was shorter and as such recovery was much faster also.

The duration of stock unavailability is directly proportional to the time and effort required to regain lost market positioning. Observations suggest that Amazon is increasingly prioritizing in-stock consistency as a significant ranking factor, a trend corroborated by the experiences of multiple clients.

Inventory Management Solutions

To navigate these challenges, brands can leverage inventory management software tailored for Amazon.

Three notable options include:

  1. Seller Central's Inventory Management: Provides basic tools for tracking and managing stock levels directly within Amazon's ecosystem.
  2. Jungle Scout: Offers comprehensive inventory management features alongside market research tools, making it easier to forecast demand and adjust inventory accordingly.
  3. Helium 10: A suite of tools including inventory management, market analysis, and SEO optimization, tailored for maximizing Amazon sales performance.

Common Inventory Mistakes

Brands often fall prey to several inventory management pitfalls:

  1. Underestimating Delays: Failing to allow buffer time for unexpected delays in production or shipping.
  2. Inaccurate Forecasting: Not predicting lead times accurately, leading to either excess stock or stockouts.
  3. Ignoring Sales Spurts: Not accounting for potential growth or sudden increases in demand in stock allocation.
  4. Omnichannel Conflicts: Diverting stock to other sales channels without considering the impact on Amazon inventory levels.

Pricing Strategies and Stock Management

A pressing question for many brands is whether to increase prices to slow down sales and prevent stockouts. While this might be a standard approach on platforms like Shopify, Amazon demands a different strategy. Running through stock at a consistent pace and temporarily closing the listing until restocked can be more beneficial in the long run. This approach avoids the detrimental impact on sales velocity and rankings that altering prices or sales rates can cause.

Conclusion

Navigating the complex landscape of Amazon inventory management requires a multifaceted approach, incorporating accurate forecasting, strategic stock buffering, and agile response to market dynamics. By understanding the profound impact of stockouts and employing effective strategies to mitigate them, brands can safeguard their rankings, maintain consistent sales growth, and navigate the competitive ecosystem of Amazon more effectively.

 

Author

Robert Prime

Owner at MrPrime.com Amazon Ranking, Growth and Support Services. Co-owner of LoveReading network the U.K.'s largest book recommendation site. 22 years in eCommerce business. Forbes Business Council member.

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