From Basic to Advanced
Amazon inventory planning is about knowing how much inventory to send to a fulfillment center and when and how much to reorder to stay in stock at all times without expensive overstocking. Failure to get this right not only leads to tied-up capital and drained resources but also stockouts and reduced restock limits. Not being able to send inventory into your FBA center due to low limits can hurt your business’s profitability.
Reduced restock limits can happen when you don’t get rid of your excess inventory to improve your sell-through rate and make room for top sellers. To Amazon, an improved sell-through rate means you have an efficient inventory management system that allows you to turn your stock into cash quickly. Therefore, it makes business sense to award you with a higher restock limit to make more Amazon shoppers happy and keep inventory moving through FBA warehouses rather than parking them there to collect dust.
That said, the recent update has made inventory management more important than ever. So you should start paying more attention to improving your inventory planning processes to ensure you don’t stock out too often or overstock on slow-moving products.
What Is Amazon Inventory Planning?
Inventory planning refers to the method that sellers use to determine the optimal stock quantity and timing to stay in stock without overstocking. In other words, it ensures sellers have adequate supply to meet their anticipated demand while minimizing expenditure. And when there’s less capital tied up in holding fees, penalties, and air shipments, among other costs, sellers will have more cash to invest in other areas of their business.
Why Is Inventory Planning Essential?
Ecommerce Industry is Thriving
Prevents Stockouts and Overstocks
Accurate forecasting is one of the critical elements of a good Amazon inventory plan. Without it, you’re essentially putting yourself into an inevitable stockout or excess stock situation, which could not only mean increased operational costs, reduced stock limits, and lowered Amazon rankings but also lost income.
Inaccurate forecasts can happen when you don’t remove non-recurring stockouts and sales spikes from your data. Failing to exclude stockouts may result in lower average velocities, leading to a lower prediction. Over-ordering can also occur when you don’t remove significant sales spikes (e.g., due to Prime Day or special sales that will not repeat themselves such as a product being unexpectedly mentioned on a famous publication or morning show) into the new forecast data, leading to a higher reorder prediction.
When creating an Amazon inventory plan, make sure you’re using the most accurate forecast data possible.
Improves Cash Flow
Maintaining healthy inventory levels with proper retail inventory planning reduces costs associated with and lost sales through under-ordering. And when you meet demand consistently, your cash flow from your Amazon business also becomes more consistent. Improved cash flow enables you to pay expenses, reinvest in other products, settle loans, and face future financial challenges with confidence.
Through better planning and control over your inventory, you’ll be able to increase your business’s profitability.
For instance, the cost to produce and purchase inventory significantly impacts your gross profit. If you stock out and want to reorder ASAP, it forces you to pay extra for any overtime that your supplier has to do to complete your purchase order on a rush basis as well as the extra cost to air freight inventory to Amazon. With increased production and shipping costs, your business is likely to make less profit.
Simply put, proper inventory planning helps you spend less money on reordering and express shipping too often, as well as the cost of storing and managing overstock inventory. It could also reduce other associated expenses, like labor fees and warehousing costs, increasing your profit margin and cash flow.
5 Amazon Inventory Planning Challenges
Managing Inventory Independent of Marketing
Many Amazon sellers tend to focus on marketing, leaving inventory planning out of the conversation. But what they don’t realize is that syncing their Amazon inventory plan with their marketing plan can also be an effective way to manage their inventory.
Suppose the inventory level of one of your promoted products gets too low because of a highly successful PPC campaign. Yet, the marketing team still tries to drive traffic and sales on that product because they’re unaware of your existing stock levels. In that case, a stockout that could have been completely avoided may become inevitable. And when you do stock out, your Amazon rankings and revenue will suffer, not to mention your restock limits and IPI score.
Another example of inventory planning and marketing planning mismatch is having to cancel a scheduled Lightning Deal because you didn’t have sufficient inventory to execute it due to lack of proper inventory planning.
Or that one time you decided on a whim to do a 20% off coupon discount email campaign for Father’s Day but realize that impromptu sale ate up a good chunk of the inventory that should have been saved for your summer sales season.
Now you’re pumping the breaks, making changes to your PPC bids, increasing selling prices, and slowing down sales because of the inventory shortage. You could have made full-priced sales using the 20% off inventory you chewed through on Father’s Day but now you're stocking out instead.
Even better would have been if you’d planned for both a Father’s Day sale and the summer sale when you put in your inventory order with your supplier. In this way, you’d be capitalizing on all possible sales opportunities to drive monthly and annual revenue to your business’s best potential.
This stockout situation happens because you failed to check whether your stock levels could afford your marketing strategies, and even before that, you failed to plan your marketing and inventory enough in advance to have the stock needed to meet all possible demand. The result: You’re either stocking out or changing your marketing plans to decrease sales in order to stay in stock, missing out on revenue and profit that could have otherwise made.
The best way to address this problem is to have your inventory team look at your marketing plan to know if it’s feasible or not. I recommend using this inventory planning template for your marketing team to fill out to give to your inventory team so both teams can properly do their planning.
You can also use our Amazon inventory planning software. It has an inventory timeline feature that’ll help you plan out marketing and seasonality and see how these two affect your inventory levels.
Inventory planning usually requires collecting data from multiple platforms, and bringing all of that data together is no small feat. You will need to gather and combine historical data and business reports that are spread across several different systems, such as FBA orders, supplier data, warehouse stocks, fulfillment information, and accounting data.
If not done efficiently, it may result in inaccurate inventory forecasting, leading to missed opportunities.
Organize all of your data in one centralized location using SoStocked. This inventory management system has several seller dashboards that you can customize however you need in order to streamline your processes. You can also create overstock and stockout reports easily to stay on top of your inventory levels, track purchase orders, and include/exclude specific forecast data to improve demand forecast accuracy.
Check out our demo page for more info!
Storing Inventory in Multiple Locations
Tracking inventory from production in China to storing it across multiple locations (FBA and 3rd-party warehouses) is already challenging. Without an inventory tracking system, it’s even more challenging to know where to ship your products exactly and how much stock is left all the time. Additionally, storing them in the wrong warehouse, i.e., an inventory that’s supposed to go to Amazon FBA ends up in one of your FBM centers, may lead to extra shipping costs and delayed shipments, increasing your risk of stocking out.
It also doesn’t help that Amazon’s restock suggestions algorithm isn’t reliable at all. For one, it isn’t reliable at tracking a product’s demand and doesn’t allow for adjustment for your marketing plans. I've explained this issue in great detail here.
And two, it doesn’t know whether you’re sending inventory from your warehouse or supplier or how much inventory you have at your local warehouse for transfer.
When using an external warehouse (which most of us these days have been forced to do) you’ll have to make two different calculations for two different lead times (supplier and warehouse) to generate proper order and transfer forecasts. It sounds like a lot of work, but it doesn’t have to be. You can use a program that allows you to do simultaneous forecasting so you can easily figure out how much stock you need from your supplier, warehouse, or even how much to send via express shipping. This way, you can always send the correct amount of inventory to any storage location to stay in stock.
Employee Mishandling Problems
5 Inventory Planning Models
EOQ (Economic Order Quantity) Model
Inventory Holding Sum Formula
Inventory Holding Cost Percentage Formula
- S = Setup cost of $1,000
- D = Annual demand rate of 20,000
- H = $.75 holding cost per unit
Square root of (2)(1000)(20000)/.75) = 7,303 units per order
Perpetual Inventory System
Min/Max Inventory Method
Just-in-time (JIT) Inventory Model
How To Create An Inventory Plan
An Amazon inventory plan is a document that lets you organize, track, and process your products. This document can be a checklist or a spreadsheet that you can incorporate into your overall inventory management strategy.
To help you improve your inventory planning process, consider these questions when creating one:
What’s my order quantity likely to be?
You can use the data from your demand forecast to determine your optimal order volume. Or, you can use an Amazon product research tool or go to Google Analytics and analyze customer buying trends to know when to anticipate high demand.
What factors might impact my inventory levels?
Factors that might impact your inventory and demand include PPC advertising, deep discounts, promotional deals, seasonality, holiday sales campaigns and customer preferences.
What can I automate?
Is my order process streamlined?
Look for ways to improve the connection between your inventory and order management teams. For example, using an order tracker to keep an eye on your inventory from the moment your supplier starts producing your inventory in China or elsewhere to shipping it to your FBA/FBM warehouse. An inventory tracking tool shows you:
Am I using the right metrics and Key Performance Indicators?
Metrics and KPIs can assist you in measuring the success of your inventory plans, strategies, and processes. Consider implementing these KPIs when building an inventory plan:
Amazon Inventory Planning Webinar
Join me as I take a deep dive into the issues around Amazon’s restock limits. Whether you just need some clarity about these recent changes or want to improve your inventory management process, this webinar is perfect for you.
In this live training, I'll cover:
Bonus: Amazon Inventory Syncing™ Software
Develop a solid Amazon inventory plan by managing and forecasting inventory more accurately. SoStocked can help you do that by syncing up your past sales, current inventory levels, and future marketing data (e.g., Lightning Deals, PPC campaigns, etc).
Some of the software features include:
Stay In Stock With SoStocked
Proper inventory planning is an integral part of any inventory management process. Get it wrong, and things can get chaotic very fast. With a solid Amazon inventory plan, you'll know what inventory to order, how much, when, and where to. Thus, you can avoid stockouts, under-ordering, and over-ordering, as well as ordering or transferring orders too late. To automate things you can use a smart Amazon inventory management software like SoStocked.com.
1,000+ Customers. Free Data Migration. 1-on-1 Onboarding.