If you want to remove stress about inventory management, then you’ll read how to manage inventory on Amazon.
Being a Seller on Amazon FBA is Intense. In a perfect world with Zen-like harmony, there will be Supply Demand equilibrium. Forever!
However, in the eCommerce world’s where the online store is always open, running out of inventory is a business reality. The paradox of it all is that Sell-Through is good but too much of it and the brands risk getting Sold-Out!
Amazon loves and rewards hot selling products and stellar customer service. If brands were to run Out of Inventory, it gets into the bad books of the A9 algorithm, which creates a cascading chain reaction that impact Rank, Sales, Trust, and Competitive Edge.
After all, why would Amazon want sellers to run out of Inventory when customers search for the products and are willing to buy more and more?
Customers Buy ↣ Sellers Sell ↣ Amazon wins ↣ A9 algorithm rewards brands!
LET’S LOOK AT AN EXAMPLE:
How many times has it happened that you look for a particular product and are greeted with no inventory or limited Supply calling for your quick action?
Imagine a Back to School event or Prime Day where laptops are in great Demand with deals and promotions. Often Demand runs ahead of Supply, and out of stocks-temporary or more prolonged, are seen.
In the example, when I searched for ‘Chromebook’ it highlights that only 1 left in stock. Wonder what happens when someone purchase that last item on the digital shelf.
THE PRICE OF BEING POPULAR
It is good to be popular and sell at a breath-taking speed. But the moment Out of Stock hits, brands run the risk of getting penalized by Amazon.
How? You might be wondering!
The answer is simple, yet it has far-reaching implications. The Rank for the top-ranking keywords and the Product listing gets degraded- there is risk of getting search suppressed.
SEARCH SUPPRESSION IN AMAZON
Search Suppression happens for reasons like incomplete product information, images, category mapping, product titles. These criteria are linked to Customer Satisfaction that Amazon so highly values. These criteria makes it easier for customers to find and then make informed purchase decisions and returns.
During Out of Stock, Amazon will hide (suppress) the product listing from search as they do not want to show products that customers cannot buy. As a result, a shopper will not find a brand’s listing in search if that listing is suppressed.
OOS and RANK IMPACT:
There is empirical evidence suggesting that Rank drops significantly when the product is out of Stock. When it gets back in Stock, the Rank doesn’t immediately go back up to the pre OOS levels.
One of the strategies Brands can employ is to increase Price marginally when they are about to go OOS. An abnormal increase would conflict with loyal customers and also A9 algorithm. But a small increase can stem the Sales and stretch the Inventory to last until reinforcement stock arrives. And for God’s sake, if the product type permits do enable Back Ordering to minimize the loss.
And it is a mandatory to Pause all promotions for that product- and then amplify promotions when back in Stock.
OOS is 0% Sales, 0% Conversions, 0% everything!
It affects RANK, CONVERSIONS, SALES and COMPETITORS will try to poach your loyal customers. Brands have to come up with a balanced strategy to ensure that they never run out of Stock – regardless of the circumstances by constantly monitoring and predicting Sales.
In terms of a strategy, there should be constant monitoring backed by Forecasting. More importantly, for the Top Selling 20 percentile SKUs- which probably accounts for 80% of Sales.
AMAZON FORECAST:
Manage inventory on amazon team typically shares their Forecasting based on Consumer Demand. This simple average based Mean Forecasting System communicates P70, 80, 90 projects in Vendor Central. Simply put, a 70% probability means that weekly consumer demand will be at or below the number of Units shown.
Sound perfect? – You might wonder if Amazon shares such forecasts weekly why brands get it wrong so often.
Amazon Forecast predictions are just an indication of what customers are going to need basing on historical patterns. There is generally no information on how many units Amazon Fulfilment Centers (FC) need to cover that Demand.
Nevertheless, Amazon Forecast is a significant indicator that should be the starting point of an AI/ML-based forecasting approach. Include data from Sales, Amazon FBA or FMB data, Rolling Time Periods (YTD, Last Year vs. Current Year), Shipments, Lost Buy Box data, Pricing, and Promotions, Unhealthy Inventory.
SAFETY STOCK and UNHEALTHY INVENTORY
Total Warehouse Inventory can completely blind-side companies into think that all is well. Not surprisingly, when they analyze by Channel, they find that they have less than optimal Stock marked for the Amazon marketplace. And dumping additional stocks via Amazon FBA at Fulfilment centers to preempt any future OOS situation is fraught with its own challenges.
Having Safety Stock is the best route, along with better Forecasting. But with a catch! OVERSTOCKED products sold via Amazon FBA products will have to pay fees for Inventory Holding in the Fulfilment Centers. Inventory older than 60 to 90 days, Amazon marks it as ‘Unhealthy‘ and will do auto markdown. This markdown hits profitability as well as additional fees.
