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Very few things are worse for an Amazon seller than to be in peak season with customer demand white hot for a specific product, only to not be able to fulfill it and capitalize on that sale because the item is out of stock.
The exact amount of revenue you can miss out on can vary depending on a number of factors, including margins, shipping costs, delivery time, etc. However, there is no doubt that you are leaving money on the table. Not only that, but they will have to look elsewhere, likely with a competitor, where they can potentially explore their catalog instead of yours, and be left with a sour taste left in their mouth.
You also risk missing out on winning the buy-box, negatively affecting your Inventory Performance Index, and getting pushed down on Amazon’s rankings, which will have a longer-term effect on your sales.
This is what can happen if you do not keep a keen eye on your inventory management. The good news is that once you know how it is quite straightforward to keep things in top shape.
This should go without saying, but you would be surprised how many sellers don’t, or only look at it during peak seasons rather than following the trendlines year-round.
Obviously, if you don’t have a good enough awareness of how well your products are going, you will be caught by surprise if sales suddenly spike, or during the busy holiday season, or you may even end up allocating too many resources to underperforming products at the expense of your real money makers.
There are plenty of tools out there today that allow you to keep track of key performance indicators like the number of orders you get through each sales channel to gain a better idea of how often certain items need to be reordered and how many units you need on hand at any given time.
This is something that should be a regular feature in your operations, not just an occasional business exercise, otherwise, you risk seeing isolated spikes or dips in demand as indicative of overall sales volume, which will almost certainly affect how you order stock.
If you take the average sales you make on a daily basis - easily calculated by taking monthly sales and dividing it by 30 - and multiply it by the amount of time it takes your supplier or vendor to get products to you (lead time), you can find out how much you need to make sure you have in stock for each product.
In simple terms, you can use the following calculation:
Average daily sales x Lead time = Reorder Quantity (i.e. you need to reorder when you hit this quantity)
Keep in mind that this tends to work mainly for regular times throughout the year, not necessarily during the peak holiday season - you would need to look back at historical data to determine your order levels, and you should probably order a bit over that to not lose out on sales.
You can still plan for a bit of extra headroom throughout the year, however, with some safety stock in case you do come across unexpected spikes in demand that you could not necessarily prepare for, or in case your supplier runs into unexpected issues getting inventory to you and ready to ship.
The calculation for safety stock is similar to that of reorders, except you subtract the reorder level from your maximum levels as follows:
(Maximum daily sales x Maximum lead time) - (Average daily sales x Average lead time) = Safety stock.
The people making your products and the people shipping them to your customers are two of the most important relationships you have as an e-commerce business, and you need to make sure you make the right choices according to your needs.
A good supplier will get inventory to your distribution center on time, and a good 3PL will fulfill orders promptly and even reimburse you if they make mistakes. You can find a list of potential 3PLs here.
If you find yourself in a position where you know you’re getting dangerously close to being out of stock, there are still steps you can take to slow it down. This can sometimes mean slowing down your sales, but you won’t be faced with not having anything on your shelves:
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