Amazon sellers operate in a highly competitive environment, and effective inventory management is a key factor for their success. It is not only a way to avoid additional storage costs but also an opportunity to retain customers. A buyer is unlikely to wait for your product to become available again if they can easily find it with competitors.
Amazon closely monitors the effectiveness of FBA sellers’ inventory and actively encourages them to optimize their management. A well-structured strategy will help you minimize costs, improve listing ratings, and ensure timely delivery of products.
In our article, we will discuss the challenges that every second business on Amazon faces when managing inventory and share recommendations for optimizing your warehouse processes.
What Is Amazon Inventory Management and Why Is It Important?
Amazon inventory management is the process of controlling and optimizing the products that sellers store in FBA fulfillment centers. This includes planning, purchasing, tracking, and managing stock availability in the warehouse. Numerous factors can affect the effectiveness of management, making the process significantly more complex. Among them are:
- Supplier production and delivery times
- Customs delays
- FBA warehouse capacity
- Storage fees
- Sell-through rate
It is important to consider all these factors in your Amazon inventory management strategy. Proper organization not only helps reduce costs but also directly impacts sales levels, customer satisfaction, and your ratings on the platform. Here are the key reasons why this is so important:
Stock level optimization
Proper Amazon inventory control helps avoid issues with overstocked warehouses or product shortages. Both can lead to losses.
Increased customer satisfaction
Amazon places great emphasis on customer service quality. If a buyer finds the product in stock and receives it within the promised timeframe, this contributes to positive reviews and repeat purchases. Sellers who monitor their inventory are less likely to face “out of stock” situations.
Reduction of operational costs
Amazon charges long-term storage fees for products in FBA fulfillment centers that have been in stock for more than 365 days. These fees can significantly increase storage costs, especially if sellers do not monitor their inventory levels and demand. Effective inventory management helps avoid stockpiling excess products in Amazon FBA fulfillment centers and reduces the financial burden on the business.
Improved product visibility on the platform
Effective inventory management can boost your rankings in Amazon’s search results. This increases product visibility and, consequently, sales.
Competitiveness
Amazon has high competition among sellers, and effective inventory management can be a significant factor in your growth. Sellers who replenish their stock on time and ensure the availability of popular products have an advantage over those who cannot meet customer demand.
How Does Amazon Track the Effectiveness of Inventory Management?
Amazon inventory management is implemented through an automated system based on machine learning. It helps FBA sellers track stock levels, monitor their movement, and avoid both overstock and product shortages.
A key element of inventory management is the Inventory Performance Index (IPI). This metric helps both sellers and Amazon assess how effective their inventory management is. Each quarter, the company reviews sellers’ IPI and sets FBA storage limits for the upcoming quarter. Four main factors are considered when calculating it:
✔ Excess inventory: The presence of products that are not selling or have been stored in the warehouse for too long.
✔ In-stock rate: The frequency of situations where products are out of stock, which can lead to lost sales.
✔ Sell-through rate: Reflects the speed at which products are sold.
✔ Stranded inventory: Stock that is in fulfillment centers but cannot be sold due to listing errors or other issues.
You can check your IPI score in your Seller Central account. To do this:
- Open the “Inventory” menu in your Seller Central account
- In the dropdown list, select “FBA Inventory”
- On the “FBA Inventory” page, find and open the “Inventory” tab at the top
- In the dropdown list, select “Inventory Performance”
- On the newly opened page, you will be able to see and evaluate your IPI score
The threshold value of the IPI score should not drop below 400. Falling below this can result in limited storage space. Sellers with IPI scores above 400, on the other hand, gain more storage opportunities in fulfillment centers. Additionally, they can reduce storage fees. A good IPI score that will allow you to receive all these benefits is 550+.
As of March 1, 2023, Amazon has implemented a new limit system, replacing weekly restock limits and quarterly volume limits with FBA capacity limits. The new system provides sellers with more control and increased storage volumes compared to previous restrictions. They are determined by a single monthly metric that sets the volume of products for storage and shipment through Amazon.
FBA capacity limits are provided in the third week of each month. This allows sellers to plan their inventory three months in advance. Each type of storage (for example, standard or oversized) has its own capacity limits.
If you need additional storage space (for example, when launching a new product), you can request extra capacity through the “reservation fees” system. This is a kind of auction where sellers can place a bid to gain priority access to additional capacity. Interestingly, reservation fees can be reimbursed up to 100% if the seller successfully sells their inventory.
What Challenges Does A Business Face During Amazon Inventory Management?
When managing inventory on Amazon, sellers face a number of challenges that negatively impact their IPI score. Understanding these difficulties will help you prepare for potential issues in advance and develop effective strategies to overcome them. Here are some of the problems:
Product shortages
When a product runs out of stock, it leads to lost sales and a decline in listing ratings. Regaining a lost position on Amazon can be challenging, especially if the out-of-stock period was long. Regularly monitoring stock levels and timely restocking can help avoid such situations.
Excess inventory
Products that remain in stock for more than 90 days are subject to long-term storage fees. Amazon will reduce your storage capacity limits and charge you additional fees for the long-term storage of products. This will limit your ability to store new or more in-demand items and increase operational costs.
Stranded inventory
Stranded inventory refers to products that are physically present in the warehouse but are not selling due to errors in the system or other issues. Such products increase storage costs. These situations can arise for several reasons:
- Listing errors
- Incomplete product descriptions or pricing errors
- Frozen listings due to violations of Amazon’s policies
- Products mistakenly displayed as out of stock
- Brand registration issues or product settings
- Technical failures in the Amazon system
- Exceeding inventory limits
The situation with stranded inventory can be corrected. To do this, go to:
FBA Inventory → Stranded Inventory
Here you will find a list of stranded products and the associated errors.
Long-term storage fees
If a product does not sell for an extended period, its storage costs increase due to additional fees. This applies to products stored in the warehouse for more than 271 days. The surcharge is charged in addition to the standard monthly storage fees.
For products stored for 271-365 days, you will have to pay an additional $1.50 per cubic foot. If the storage period exceeds 365 days, the storage cost increases to $6.90 per cubic foot or $0.15 per unit, whichever is greater.
Low inventory levels
Insufficient inventory levels can lead to frequent restocking delays and a loss of customer engagement. If a seller fails to restock the warehouse on time, it negatively impacts their ratings and sales. Planning will help you maintain optimal inventory levels on Amazon and not miss sales opportunities.
Strategies to Optimize Amazon Inventory Management
The challenges outlined above highlight the importance of a meticulous approach to Amazon inventory management. This requires both accurate forecasting and active monitoring of processes. Here are several key strategies that will help you optimize the process and avoid common mistakes:
1. Build strong relationships with your suppliers
Strong partnerships with suppliers will help ensure stable and timely deliveries of products, minimizing the risk of shortages or delays in restocking. This is especially important when selling on Amazon, where speed and timeliness of delivery directly impact seller ratings and customer satisfaction. Additionally, working with trusted suppliers can provide you with more flexibility when increasing order volumes, which is critical during peak demand periods.
2. Maintain an optimal inventory level for 60 days
Aim to have enough products in stock to last for approximately 60 days of sales. This will help avoid both shortages and excess inventory. Such a stock level will also help manage unpredictable demand fluctuations and reduce the likelihood of running out of products.
3. Reduce excess inventory
If there is a lot of unsold inventory remaining in Amazon’s fulfillment centers, try holding a sale or applying discounts. This will help you sell off obsolete products more quickly and, most importantly, avoid long-term storage fees. If the products continue to be unsold, submit a request to remove them from Amazon’s warehouses. This will give you the opportunity to sell them through other channels, freeing up space for more in-demand and profitable items.
4. Be prepared for contingencies
Any disruptions in the supply chain, natural disasters, or changes in legislation can significantly impact the availability of your products and their delivery to the end consumer. Be prepared to handle such contingencies. You can keep stocks of critical products in your own warehouse or with a 3PL provider to avoid shortages in case of delays. It is also important to have alternative suppliers you can quickly contact if your primary partner is unable to fulfill their commitments. Having a backup plan will allow you to prepare for such situations in advance and minimize their impact on your business.
5. Reduce demand if the product is running low
If inventory is running low, use marketing tools to reduce demand for the product. This could involve temporarily raising prices or limiting product advertising. This way, you can avoid completely running out of stock before replenishment.
6. Automate management with specialized software
Invest in inventory management software. It will help you track stock levels in real-time, forecast demand, and receive timely alerts for restocking needs. Automation will reduce the risk of errors and significantly improve the efficiency of Amazon inventory management.
Benefits of Automated Amazon Inventory Management
Amazon provides access to a wide audience. As a seller, it is important to always have enough stock to meet demand and retain this audience. With the right tools, you can minimize errors and achieve maximum efficiency in Amazon inventory management. Here’s what automation will give you:
Automatic inventory updates
An inventory management system will allow you to synchronize information about the quantity of products in stock with the data on Amazon in real-time. This will eliminate errors associated with manual data updates and reduce the risk of overselling items that are out of stock. With automation, you will always be aware of the current status of your inventory and can promptly replenish it, avoiding shortages.
Inventory monitoring
Monitoring inventory with automated systems will allow you to track product movement in real-time. This will help you promptly identify excess stock, slow-moving items, and expired units. The system also provides analytics on sales velocity, enabling you to adjust your inventory and optimize warehousing costs. Continuous monitoring will help you quickly respond to any changes in demand and prevent stockouts or overstocking.
More time to focus on strategy
Reducing the burden of operational management will allow you to focus on other important aspects—expanding your product range, improving marketing strategies, or finding new suppliers. You will be able to devote more attention to long-term goals and business development, leaving all routine tasks to the software.
Integration with other systems
Integrating the Amazon inventory management system with other platforms, such as accounting software, will greatly simplify the process and enhance overall efficiency. This integration will allow you to automatically synchronize data on inventory, sales, and finances, eliminating the need for manual data entry and reducing the risk of errors.
Ysell.pro – A Solution that Meets All the Needs of Amazon Sellers
Amazon charges monthly storage fees for inventory, and these costs can significantly increase if items are stored for longer periods or take up a lot of space. The longer an item remains unsold in the warehouse, the more fees accumulate, especially if the product transitions into the long-term storage category. To avoid high expenses, it’s important to regularly review your inventory, monitor sales velocity, and optimize your product offerings.
Ysell.pro provides all the necessary tools for effective Amazon inventory management. The system allows you to track inventory levels in real time, forecast demand, and automatically update product information on the platform. You will be able to manage inventory both in your own warehouse and across all FBA warehouses. The integrated FBA management logic and built-in inventory reports will help you avoid high Amazon fees. You can be confident that you are sending the right quantity of products to the appropriate fulfillment center.
Additionally, our software allows you to bypass the standard automatic distribution of inventory among FBA warehouses. It gives you the ability to select the specific products you want to send. All information about your shipments is stored in the system, and you can access it at any time for analysis and control.
With the right strategies and tools, you will optimize your Amazon inventory management and create a solid foundation for sustainable growth and competitiveness on the platform.
Frequently Asked Questions
1. What is the Amazon inventory management system?
The Amazon inventory management system is an automated platform that oversees the entire process of storing, tracking, and replenishing products in FBA warehouses. It enables sellers to efficiently manage their inventory, calculate the optimal quantity of products to send to warehouses, and avoid shortages or excess stock.
2. What is the IPI on Amazon and how does it affect inventory management?
IPI (Inventory Performance Index) is a measure of inventory management efficiency on Amazon. It affects storage capacity limits: the higher your IPI, the more inventory you can store in FBA warehouses.
3. How does Amazon set capacity limits for FBA sellers?
Amazon sets capacity limits based on your IPI and sales levels. The limits are updated monthly, determining how much inventory you can store in FBA warehouses.
4. What should I do if my products have been stored for too long and are not selling?
You can hold a sale or offer discounts on outdated products to free up space in the warehouse more quickly. If the sale doesn’t help, you can submit a request for the return of the goods or their disposal through the Amazon system. This will help avoid additional long-term storage fees.
