Inventory management in eCommerce refers to monitoring the location, amount, pricing, and mix of stock available from your store. It helps you know which products are understocked, out-of-stock or overstocked. With this knowledge, you can better forecast and prepare for inventory purchases and prepare for potential shortages.
There are different ways of managing your eCommerce store's inventory. A standard method is storing and carrying out fulfillment by yourself; another is Fulfillment by Amazon (FBA). With FBA, you ship your inventory to Amazon's fulfillment centers, and the eCommerce giant handles storage and fulfillment processes on your behalf. Amazon FBA has emerged as an efficient way of managing inventory for eCommerce retailers due to the advantages that come with such an arrangement.
Understanding Amazon FBA
When you opt-in to FBA, you must create and sell your products on Amazon. After that, you can add your items to Amazon's catalog. Then, pack your products to ensure safe shipping to Amazon's fulfillment centers. Customers can now purchase your products. Amazon will receive the orders, add its brand packaging, and ship them to customers. Also, the company will handle all customer concerns through their 24/7 customer support service.
Typically, you will still have control over several aspects. You are responsible for picking the products you want to sell. As an eCommerce retailer, you already know how important having products that sell fast is. Therefore, you must maintain this rule as you move to fulfillment by Amazon. While you can sell almost anything on the platform, you don't want to end up with slow-moving items.
When it comes to inventory management, you are responsible for keeping an eye on your stock and replenishing it. You must keep the inventory well stocked to avoid a stockout.
Benefits of Using Amazon FBA
While you're still responsible for your inventory with Fulfillment by Amazon, there are a lot of benefits of managing your inventory with Amazon FBA. Here are some perks you'll enjoy over storing and filling products on your own.
Save on Storage Costs
If you store inventory independently, you need to find an oversized garage or local product storage space to hold additional merchandise you don't need to ship immediately. But leasing, purchasing, and maintaining your storage space can be costly, particularly when you need repairs or in areas with high property taxes.
When you use Amazon FBA, you won't need to lease, construct a warehouse or even convert your basement into a storage facility. You can store your products at Amazon's fulfillment centers. All you need is to send your shipments, and they will send them to different locations to ensure the timely delivery of your orders. Your items will be safe and out of your way. The service isn’t free but is cheaper than owning your space and hiring workers to maintain it.
Amazon fulfillment centers can receive your orders quickly. If you store inventory in your facility, such efficiency could only be possible if you operate full-time and have adequate staff to ensure that items hit the road on time. With FBA, you can add more items to your line without extensive internal training, and rest assured that your daily operations are running seamlessly.
Amazon Handles Fulfillment on Your Behalf
Amazon FBA will help you manage inventory effectively by handling most of the technical details so you can have more time to focus on your stocks. The eCommerce giant does much of the customer service and takes care of order problems, addresses changes, customer inquiries, etc. Therefore, you will have more time to monitor your inventory.
FBA also takes care of the returns and refunds. In a perfect world, all customers would be okay with your items, but the reality is quite different. You're bound to get some products returned and receive refund requests. Verifying them can take too much time, but with Amazon FBA, you pay a small processing fee, and they'll take care of everything.
When is Amazon FBA Right for Your Business?
Is Fulfillment by Amazon the right option for your eCommerce business? Below are some factors that can help you decide if Amazon FBA would be better than other options.
The Sales Orders you Receive
New eCommerce businesses may be able to manage inventory and handle fulfillment independently, and it may not be worth switching to FBA. But as your business grows, you gain more recognition, and your monthly sales orders increase. If it reaches a point when you can't manage all the processes alone, FBA becomes ideal as it handles storage and fulfillment, leaving you to focus on avoiding stockouts and excessive stock.
Type of Products You Sell
The products you sell can determine whether to choose Amazon FBA or the other options. Fulfillment by Amazon is ideal when you sell small but valuable products to avoid high costs. Large and bulky products are more expensive since FBA expenses depend on size categories. Unless they are highly valuable, the profit you can make may not justify the need to use FBA. Therefore, you will want to choose Fulfillment by Amazon if you sell small-sized products with higher retail prices. Maintaining the required inventory can press you financially, but you can always find a funding option suitable for eCommerce businesses.
Number of Employees
If you are an eCommerce retailer dealing with seasonal and trending products, there are times when the demand spikes, and you sell a lot of products. Such times require you to have adequate staff to handle storage and fulfillment processes. Instead of hiring additional temporary employees for the peak season, FBA would be a better option since Amazon has sufficient staff to do everything from receiving your inventory to packing to delivering orders to customers.
How to Effectively Manage Inventory for Amazon FBA
Here's what you can do to manage inventory for Amazon FBA effectively:
Track Sell-Through Rate
Amazon FBA allows you to monitor your sell-through rate. It measures the inventory volume sold from your eCommerce store in a particular period compared to the inventory volume received during the same period. The Sell-through rate helps establish accurate Amazon inventory management and anticipate customer demand.
Let's say, for instance, you review the metric annually. You can quickly establish if sales increases in certain months. Armed with that knowledge, you can ensure sufficient inventory for those months. Also, knowing the amount you sell on a quarter-to-quarter or even month-to-month basis helps prevent understocking and overstocking. You will have accurate inventory forecasting that ensures you maintain the best margins possible.
Optimize Amazon Inventory Management Tools
The inventory management tools available on Amazon FBA include:
The Amazon FBA Restock Tool
When you overstock products that are not selling, you are likely to lose on the resale profitability and incur storage expenses of those items taking up space. Fortunately, the free restock tool available on Amazon FBA helps increase conversions and sales by providing more same-day and one-day shipping opportunities. The tool available in the Restock Inventory section can also help reduce the risk of stranded inventory and cushion your Seller rank, impacting your visibility across the site.
It considers demand forecast, seasonality, sales history, and your store's inputs to establish when to send more inventory. It also provides information on your estimated ship days and ideal replenishment quantities. Therefore, you can use this information to know the items you should continue selling and those you should eliminate for good.
Inventory Age Report
This report provides data on how well you are striking a balance between your inventory rate and the amount you sell. You can download the reports and use them to identify the amount of time a product in the inventory spends in the inventory center before a customer purchases. This information helps you determine your restock rate and see the storage costs you incur by having the product.
Inventory Performance Index (IPI)
You can find this rating on the FBA's Performance Dashboard. It highlights factors affecting inventory management. When you have a lower IPI rating, you will likely incur excess inventory charges and limitations in shipping more products.
Surplus Inventory Reports
Excess inventory in Amazon refers to a unit that ages over 90 days. Amazon tools automatically recommend that you find ways to get better inventory ROI on such units, e.g., by lowering the price. If you have excess inventory, you have various options, including creating a sale, advertising a listing, or creating a product listing removal.
With Amazon FBA inventory management tools, you can maintain consistent inventory levels and prevent aged and spoiled goods. Also, managing your inventory at scale saves on costs and allows you to offer incentives and promotions to customers, e.g., discounted offers and free shipping.
Integrate Third-Party Inventory Management Tools
Although Amazon's Seller platform has robust in-built tools, you can choose to integrate third-party software to track and manage inventory. All you need is to ensure the tools integrate with all online sales channels and offer recommendations for inventory replenishment. The software must monitor and give reports on product types and quantities and track the period (days) products have been in the storage facility.
When choosing the best third-party tool, you can start by signing up for a free trial to test it out and familiarize yourself with the dashboard. Ensure it is cost-effective while meeting your eCommerce business requirements. You can compare the benefits and drawbacks of each to determine which will best complement the reports and tools present through your FBA Seller platform.
Prepare Ahead Financially
Inventory management has an impact on almost all aspects of your eCommerce business. When you use Amazon FBA in managing your inventory, you will reap from the efficiency of the eCommerce giant. You will have accurate information that helps determine when to increase your stocks and when to stop.
You will also know which items to prioritize. But despite having all this crucial information, you must still prepare financially for your inventory to ensure you have the right amount when needed. You may have details on exactly when you should increase your stock and which specific products to prioritize, but all that will be worth something when you have funds in advance to purchase those items.
Several financing options are available, including inventory financing and a line of credit. But these traditional bank products are not ideal for eCommerce businesses. They have several downsides, including high-interest rates and requiring collateral. Also, conventional bank products usually have a longer approval process. Getting the amount you need to purchase your inventory may take time.
What you need is a funding option created with eCommerce businesses in mind. Such a financial option recognizes the unique aspects of your business, including the long cash cycle. Therefore, they will offer eCommerce-friendly terms and conditions. For instance, a financing option that syncs with your sales will allow you to repay after selling your items. Consequently, you won't experience the pressure as would have been the case with traditional bank products with timeframes when you must repay your loan whether you sold your inventory or not.
Ensuring Efficient Inventory Management
Inventory management is a critical task for any business. Amazon FBA beats other methods of managing inventory because the program handles storage and fulfillment on your behalf and has features and tools that allow efficient inventory management. Amazon FBA will help you manage your items effectively and grow your business.
As that happens, you'll need adequate funds in advance to buy the right amount of stocks. At Onramp Funds, we have great finance solutions for eCommerce sellers and can help you get the cash you need to purchase your inventory. Contact us today to learn how we can help.