Like any traditional business, an e-commerce store must maintain strict control over its inventory. This means knowing how many units you have of each item, when you need to place your next order for a specific item, which items are selling and which have been in stock for a while etc. This control system is known as inventory management.
However, inventory management not only applies to items available in stock at a given time, but also involves keeping track of the volumes that have been sold in the past and those expected to be sold in the future, including data on orders that are placed more than once, customer requests for unavailable items, data on returns, order cancellations, and so on.
In reality, inventory management is a fundamental process that allows you to keep the myriad of sales data that can be collected in any online business organised and correctly managed. Having a good inventory management system will give you greater control over your business operations and help you to make informed decisions.
For all these reasons, developing a solid inventory management plan is key to a successful online business. The first step will be to acquire a software programme or management system that makes it possible to collect a multitude of data in an organised and orderly way, without creating lots of complications. This helps to prevent excess or lack of stock, product deterioration or wastage, and other issues that can lead to enormous potential losses for a company as a whole.
Despite being an essential tool for a store that has just started selling online and also for those already established in the market, many selling partners are unaware of how it works and how useful it is. For this reason, we want to help you with our basic guide on how inventory management works, the benefits its can offer us as traders and the drawbacks it may present.
Finally, we will also discuss the inventory management tools and services that Amazon offers for registered selling partners.
Whether you have already implemented your own inventory management system in your online store or you don’t really have any idea what this is all about, read on to discover everything that inventory management can do for your business.
However, inventory management not only applies to items available in stock at a given time, but also involves keeping track of the volumes that have been sold in the past and those expected to be sold in the future, including data on orders that are placed more than once, customer requests for unavailable items, data on returns, order cancellations, and so on.
In reality, inventory management is a fundamental process that allows you to keep the myriad of sales data that can be collected in any online business organised and correctly managed. Having a good inventory management system will give you greater control over your business operations and help you to make informed decisions.
For all these reasons, developing a solid inventory management plan is key to a successful online business. The first step will be to acquire a software programme or management system that makes it possible to collect a multitude of data in an organised and orderly way, without creating lots of complications. This helps to prevent excess or lack of stock, product deterioration or wastage, and other issues that can lead to enormous potential losses for a company as a whole.
Despite being an essential tool for a store that has just started selling online and also for those already established in the market, many selling partners are unaware of how it works and how useful it is. For this reason, we want to help you with our basic guide on how inventory management works, the benefits its can offer us as traders and the drawbacks it may present.
Finally, we will also discuss the inventory management tools and services that Amazon offers for registered selling partners.
Whether you have already implemented your own inventory management system in your online store or you don’t really have any idea what this is all about, read on to discover everything that inventory management can do for your business.
Introduction to inventory management
Inventory management is the process of tracking and accounting for all of your items and products as a business owner. This management system applies to online businesses as well as conventional physical stores. However, in this guide we will focus on e-commerce.
This is an essential system for knowing exactly what you need to send each month, what items are selling and which ones remain, month after month, collecting dust on the shelves of your warehouse. In addition, inventory management also serves to track past and current sales trends, so you can ensure that you're getting the most out of every order you place from your suppliers.
This means that it is essential to keep strict records of each and every order that you receive in your store, so that you can collect the details of each transaction. What’s more, inventory management is an important part of any online business because it ensures that you are aware at all times of how many products you have on hand and how much space you have left in your warehouse.
If you do not monitor your inventory levels, you can easily find that you have run out of warehouse space when you go to receive an order from your distributor, or that you do not have a certain item that customers are interested in. This can result in a loss of revenue and the dreaded customer dissatisfaction.
This is an essential system for knowing exactly what you need to send each month, what items are selling and which ones remain, month after month, collecting dust on the shelves of your warehouse. In addition, inventory management also serves to track past and current sales trends, so you can ensure that you're getting the most out of every order you place from your suppliers.
This means that it is essential to keep strict records of each and every order that you receive in your store, so that you can collect the details of each transaction. What’s more, inventory management is an important part of any online business because it ensures that you are aware at all times of how many products you have on hand and how much space you have left in your warehouse.
If you do not monitor your inventory levels, you can easily find that you have run out of warehouse space when you go to receive an order from your distributor, or that you do not have a certain item that customers are interested in. This can result in a loss of revenue and the dreaded customer dissatisfaction.
The importance of inventory management in e-commerce
So, now you know that inventory management is a critical part of running any successful business. However, given the growing demand for online sales, every online store needs an inventory management system, especially at times when sales are skyrocketing. Without a system, you lack control, which could bankrupt the business.
Therefore, online businesses require online selling partners to keep very accurate records of how many products they have in stock, when they need to place orders, what items are selling and which are not etc. As products are sold and the business grows, each seller also needs to know their current and past inventory volumes, orders and repeat orders, supply, and demand, and collect data on deliveries and returns, among other things.
Using a variety of methods, such as tracking orders and purchases, tracking inventory levels, and maintaining data on demand patterns and competitors, online selling partners can help to ensure that their business is running smoothly and effectively.
Therefore, online businesses require online selling partners to keep very accurate records of how many products they have in stock, when they need to place orders, what items are selling and which are not etc. As products are sold and the business grows, each seller also needs to know their current and past inventory volumes, orders and repeat orders, supply, and demand, and collect data on deliveries and returns, among other things.
Using a variety of methods, such as tracking orders and purchases, tracking inventory levels, and maintaining data on demand patterns and competitors, online selling partners can help to ensure that their business is running smoothly and effectively.
Potential benefits of good inventory management
To prevent an online business from coming to a halt or to ensure all customer demand can be met, we need to carry out very strict stock management, monitoring all the data related to inventory and sales. This prevents issues such as running out of stock, ordering items at the wrong time, having a saturated warehouse etc.
Now let's look at the potential benefits of good inventory management:
Now let's look at the potential benefits of good inventory management:
- Effective warehouse organisation and management: Having a warehouse that is properly organised and not saturated with stock will allow you to find and obtain products more quickly than a messy one where you don't know the location of each item.
- Greater control over demand: By analysing sales trends (for example, on specific dates from previous years, such as Black Friday, Christmas, Mother's or Father's Day etc.) you can forecast current sales and future trends to make a more accurate prediction of your inventory needs and get ahead of them before it's too late.
- More efficient procurement for your business: With good stock management, you may be able to benefit from discounts for bulk purchases of a product that you expect to sell in large quantities at a certain time if you know the trend.
- Less inventory obsolescence: This includes products that can no longer be sold because they have not sold and have passed their useful life.
- Reduction of losses due to product expiration: In line with the previous point, the expiry dates of certain perishable items come into play.
- Lower storage costs: Storage is one of the costs that any e-commerce store has to bear. The larger the size of your products, the greater this expense will be, but it's not just the size that matters. The time an item remains in the warehouse is directly proportional to the cost the company incurs for its storage.
- Reduction of the risk of theft: If we have the right stock levels in our store or warehouse, the damage sustained in case of theft will be less than if we have accumulated countless items that have been there for a long time and not sold.
As we can see, inventory management requires strict control of the warehouse of an online store. What can we do in the warehouse to make it easier to monitor and control our inventory? First, categorise the products in different parts of the warehouse. Then, determine where there are surpluses and where stock is lacking. Finally, establish how often you are going to check inventory (daily, weekly, biweekly, monthly etc.).
Following all of these tips will keep your inventory and warehouse in check and avoid potential problems that your business may face as a result of a lack of a suitable inventory management system, as will be covered below.
Following all of these tips will keep your inventory and warehouse in check and avoid potential problems that your business may face as a result of a lack of a suitable inventory management system, as will be covered below.
Possible challenges of inventory management
Although it may sound simple, the task of managing inventory correctly can present certain difficulties, especially if you don't have the right tools or experienced staff. It's not simply a matter of keeping a basic list of the units sold or in storage; it goes much further.
Inventory management takes up a significant part of the time that needs to be spent on an online business. It involves closely monitoring various factors that have a considerable impact on a company's decision-making. If the right tool is not used, various challenges may arise:
Inventory management takes up a significant part of the time that needs to be spent on an online business. It involves closely monitoring various factors that have a considerable impact on a company's decision-making. If the right tool is not used, various challenges may arise:
- Absence of real-time data: A simple Excel spreadsheet will not allow you to synchronise sales with real-time data collection, but will need to be manually updated afterwards.
- Human errors: In terms of calculations, inventory management software will allow us to maintain infallible control of items entering or leaving the warehouse or orders and returns. A machine will not fail, while human personnel doing manual work can make mistakes.
- Marketing problems: If inventory management does not function as it should, we will have no knowledge of key data on stock, excess stock, stock obsolescence, etc., which will prevent us from employing an adequate marketing strategy (with discounts, offers, etc.) to clear any excess stock that is occupying key space in our warehouse or is about to go to perish.
- Data-based decision-making when purchasing: Without a doubt, information is power. And with all the information at our fingertips, we can make smarter purchases.
These are just some of the challenges that may arise as a result of not implementing an adequate inventory management system in our online store, and they highlight the importance of properly digitising this important part of our business strategy. Without effective inventory management, online businesses can quickly sink under the weight of record keeping and data analysis.
If your online business has run into any of the problems mentioned above, it's time to set up a new or more suitable inventory management system. This may require certain expenses for software, specialist personnel, training etc., but these will undoubtedly lead to a healthier inventory, better warehouse organisation and, ultimately, greater sales success.
If your online business has run into any of the problems mentioned above, it's time to set up a new or more suitable inventory management system. This may require certain expenses for software, specialist personnel, training etc., but these will undoubtedly lead to a healthier inventory, better warehouse organisation and, ultimately, greater sales success.
How does inventory management work?
Whether your e-commerce business sells products through an online store with your own domain or uses Amazon as the preferred online sales website, inventory management is an essential tool. However, Amazon is here to simplify things for you with a set of tools that will make your job much easier.
With Fulfilment by Amazon, you will not only be able to ship your orders quickly, which guarantees an important competitive advantage over other selling partners in the same sector, you will also have at your disposal an intuitive and easy-to-use inventory management tool.
To enjoy this and many other features, the seller needs to be registered with the Fulfilment by Amazon programme, which costs €39/month. The process is very simple and can be completed via this link.
On the Inventory Management page, you can see a detailed list of all the functions that Amazon can provide, such as:
With Fulfilment by Amazon, you will not only be able to ship your orders quickly, which guarantees an important competitive advantage over other selling partners in the same sector, you will also have at your disposal an intuitive and easy-to-use inventory management tool.
To enjoy this and many other features, the seller needs to be registered with the Fulfilment by Amazon programme, which costs €39/month. The process is very simple and can be completed via this link.
On the Inventory Management page, you can see a detailed list of all the functions that Amazon can provide, such as:
- View and sort your inventory
- Create, copy and modify listings
- Manage prices
- Add and remove images
- Close and delete listings
You can also send or restock inventory in line with your needs, set up restocking alerts so that you never forget to order supplies from your suppliers, compare prices with other selling partners and match the lowest price, print product labels etc.
Once in Inventory Management, sellers can access the Inventory Control Dashboard, which consists of a set of cards with a summary of statistical inventory data and ways to improve its effectiveness and performance. Don't hesitate to use the link above to learn more about the statistical indicators offered by the Inventory Control Dashboard.
With Inventory Management, you can also analyse the status of your inventory in order to identify possible inventory problems and resolve them in good time. Here are some of the options you have:
Once in Inventory Management, sellers can access the Inventory Control Dashboard, which consists of a set of cards with a summary of statistical inventory data and ways to improve its effectiveness and performance. Don't hesitate to use the link above to learn more about the statistical indicators offered by the Inventory Control Dashboard.
With Inventory Management, you can also analyse the status of your inventory in order to identify possible inventory problems and resolve them in good time. Here are some of the options you have:
- Maintain a balanced inventory level between inventory sold and inventory available to avoid excess inventory and old inventory.
- Avoid long-term storage fees.
- Fix issues related to listings.
- Keep your most popular products in stock at the right level, whenever possible, to meet customer demand and maximise customer satisfaction.
The Inventory Performance Dashboard shows you a bar divided into four categories to help categorise the health of your inventory: Excellent (dark green), Good (light green), Sufficient (yellow) and Poor (red). If the status is Poor, alerts will be sent to notify you of the steps you can take to improve that status.
In terms of fees, in addition to being registered with Fulfilment by Amazon, you will also need to pay a monthly fee for inventory storage, which will differ depending on inventory volume, the type of product stored, whether the goods are hazardous or not, and storage dates. You can check all these details here.
For extended storage periods (where they exceed a certain number of days and depending on the type of item), Fulfilment by Amazon rates also vary.
If you still have any questions about how Fulfilment by Amazon works and all the things it can do for you as a seller, watch this explanatory video that will clarify any doubts.
In terms of fees, in addition to being registered with Fulfilment by Amazon, you will also need to pay a monthly fee for inventory storage, which will differ depending on inventory volume, the type of product stored, whether the goods are hazardous or not, and storage dates. You can check all these details here.
For extended storage periods (where they exceed a certain number of days and depending on the type of item), Fulfilment by Amazon rates also vary.
If you still have any questions about how Fulfilment by Amazon works and all the things it can do for you as a seller, watch this explanatory video that will clarify any doubts.
Inventory Management at Amazon: key terms
Of the Amazon tools used for inventory management, the most useful is the Inventory Control Dashboard for Fulfilment by Amazon products. This dashboard gives a summary of the most important inventory statistics and also highlights opportunities to improve both inventory efficiency and performance.
Some of the key performance indicator cards offered by the panel include:
Some of the key performance indicator cards offered by the panel include:
- Inventory Performance Index: Indicates whether you have sufficient stock of your bestsellers, whether inventory levels are adequate, and whether any problems that may arise with your listings are being resolved.
- FBA Inventory Percentage: The percentage of time your FBA products have been in stock over the past 30 days (weighted by sales over the past 60 days).
- Manage Excess Inventory: Shows the products with the most excess inventory (this is defined as the inventory for which we believe it is probably more expensive to maintain stock and pay the storage costs than to reduce it through advertising, liquidation or removal of inventory).
- Age of the FBA Inventory: How long the inventory has been stored in Amazon's fulfilment centres and the measures necessary to reduce or remove it.
- Restock Inventory: This option shows products that, in view of the most recent sales trends, could be out of stock in the next 28 days, which could lead to shortages and, therefore, loss of sales and customer dissatisfaction.
For more information about this, visit the following link, where you will find more Fulfilment by Amazon metrics.
How to check that your inventory management is working
In the section where we discussed how Amazon's inventory management works, we mentioned indicators that Amazon has made available to selling partners to enable them to check how healthy their inventory is and which measures they should take in each case. Below, we explain how we reach a conclusion on the status of your inventory:
Amazon considers there to be excess inventory when a product has been in storage for more than 90 days without selling. In addition, Fulfilment by Amazon calculates the excess inventory percentage, which is the percentage of units in your inventory that is deemed as excess.
Amazon considers there to be excess inventory when a product has been in storage for more than 90 days without selling. In addition, Fulfilment by Amazon calculates the excess inventory percentage, which is the percentage of units in your inventory that is deemed as excess.
In addition to the performance bar (Excellent-Good-Sufficient-Poor) mentioned above, there are three further related metrics:
- Excess units: The number of units for which the cost of keeping them in the warehouse is greater than the cost of any measures that could be taken, such as reducing their price or removing them from inventory.
- Estimated total cost of storage: The sum of the estimated costs derived from not taking action and keeping this inactive inventory in the fulfilment centre for a period of three years.
- Excess inventory: Total SKUs with excess inventory.
In addition, Amazon has a practical tool known as Improve Direct Sales, which allows you to see the ASINs of the products for which sales can be improved. This allows you to leave products with optimal sales to one side and focus on those that could be improved so as to prevent any major problems.
You can also monitor your performance by looking at the Fulfilment by Amazon time-in-stock ratio, i.e. the percentage of time your FBA-restockable ASINs have been in stock over the last 30 days relative to the number of units sold for each SKU in the last 60 days.
Visit this link to learn more about all the Fulfilment by Amazon metrics, which will enable you to analyse where your inventory management could be improved and what aspects you should focus on to increase your sales.
You can also monitor your performance by looking at the Fulfilment by Amazon time-in-stock ratio, i.e. the percentage of time your FBA-restockable ASINs have been in stock over the last 30 days relative to the number of units sold for each SKU in the last 60 days.
Visit this link to learn more about all the Fulfilment by Amazon metrics, which will enable you to analyse where your inventory management could be improved and what aspects you should focus on to increase your sales.
How to ensure the effectiveness of your inventory management system
Ensuring that the inventory management system of an e-commerce store works efficiently and offers a competitive advantage over other selling partners in the same sector requires strict control over as much data as possible. The key data includes:
- Number of products sold.
- Date of sale of those.
- Time that a product has spent in the warehouse.
- Categorisation of products as popular/not popular based on point 3.
- Number of times the same order is placed or order frequency.
- Optimal times for announcing product offers or discounts.
- Sales records in overall numbers, product type, price and date.
By collecting this data, we will be able to optimise our online store’s operations and strategies to provide better customer service, while also improving our warehouse management, supply and order preparation processes.
Conclusion
As we have seen, inventory management is essential for companies, regardless of their size, as it enables them to have complete control over their inventory, stocks and the obsolescence of products, which in turn allows them to develop a more effective commercial strategy by being able to properly distribute and stock up on their merchandise.
Amazon makes it easy for selling partners who choose to sell through its website using Fulfilment by Amazon and all the tools and functions that this programme offers.
You have already seen how to increase your profits and minimise risks with inventory management, so all that’s left to do is apply it to your online store or improve the inventory management system you have been using up to now. By implementing an effective inventory management system, you will be able to enjoy a competitive advantage. Get started now!
Amazon makes it easy for selling partners who choose to sell through its website using Fulfilment by Amazon and all the tools and functions that this programme offers.
You have already seen how to increase your profits and minimise risks with inventory management, so all that’s left to do is apply it to your online store or improve the inventory management system you have been using up to now. By implementing an effective inventory management system, you will be able to enjoy a competitive advantage. Get started now!
FAQs
What is inventory management?
Inventory management is a system for monitoring and controlling a company's product stocks, as well as recording and regulating incoming and outgoing stock, projecting sales, identifying stagnant merchandise, minimising costs due to long-term storage and providing greater control over the business at a general level.
How do sales trends affect inventory management?
At specific times (such as Christmas, Black Friday etc.), there is an increase in sales that can be anticipated by analysing sales trends. This analysis makes it possible to predict the inventory needs that will be produced and thus prevent stock-outs, customer dissatisfaction or customer loss. What’s more, if there is a downward sales trend, it may be useful to apply offers or discounts to free up warehouse space and reduce or prevent inventory obsolescence.
What is inventory obsolescence?
This term refers to inventory that has not sold due to lack of demand and is therefore “dead” or unusable once it has reached the end of its useful life. It has probably spent a long time in the warehouse, resulting in costs for the company.
Why does Amazon charge a fee for long-term storage?
Excess inventory or indefinite storage in Amazon’s fulfilment centres limits space for higher-demand and faster-selling products. By charging long-term storage fees, Amazon can continue to provide the best service to both selling partners and shoppers, offering them the products with the highest demand.
As a seller on Amazon, how can you identify whether you have inventory in long-term storage?
Amazon notifies its selling partners of the existence of inventory in long-term storage, which will be subject to an additional fee six weeks before the date on which Amazon intends to implement inventory clearance.
Is the monthly fee for storing inventory on Amazon the same for all types of items?
No, Amazon’s inventory storage fees differ depending on the volume of items in the warehouse and due to the existence of regulations that must be met regarding the storage of hazardous goods.
How do you calculate the Amazon Inventory Performance Index score?
This index measures your effectiveness and productivity in managing your Fulfilment by Amazon inventory. The main factors that influence this score are maintaining a balanced inventory, the absence of long-term storage fees, rectifying issues in listings and keeping adequate stock levels of popular products to prevent shortages.
What factors influence the Inventory Performance Index score?
Firstly, excess inventory and old inventory should be avoided. Ideally, you should keep enough inventory to cover 30 to 60 days of expected sales. Second, it's a good idea to improve your 90-day expected sales by balancing inventory over that period. What’s more, you should ensure that all inventory is available for sale by rectifying any listings with inactive offers. Finally, it is advisable to increase sales by maintaining an optimal stock level of popular items.
What does the FBA inventory age indicator refer to?
This Fulfilment by Amazon indicator details how long a seller’s inventory has been stored at Amazon's fulfilment centres and the measures required to reduce or remove it to avoid unnecessary costs.
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