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Amazon FBA Inventory Management & Replenishment
- 2. • Forecastly • Hundreds of Amazon seller accounts analyzed • Sold on Amazon for almost 10 years
- 3. Goal of the Session Make you more revenue profit
- 4. Sections
- 5. Excess Inventory WHAT IS EXCESS INVENTORY? Low inventory turnover is related to overstocking, excess inventory, and the presence of non-moving inventory. Low turns also creates liquidity problems, putting increased pressure on working capital. High inventory turnover is typically positive because it indicates goods are being sold rapidly. It may result from good inventory management, but may also signify insufficient safety stock. Wait… No stock-outs can be a bad thing?
- 6. Cumulative Profit $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 20% Excess 5% Excess $0 $5,000 $10,000 $15,000 $20,000 Sold Excess $0 $5,000 $10,000 $15,000 $20,000 $11,475 Inventory Value Excess Inventory Example
- 7. Why do we care? Why do they happen? Stock-Outs
- 8. 3 Days vs. 1 Day Per Month $0 $10,000 $20,000 $30,000 $40,000 $50,000 $60,000 $70,000 $80,000 3 Days/Month 1 Day/Month 3 Days / Month 1 Day / Month Profit / Day $200 $200 Missed Profit / Month $600 $200 Total Profit* $64,800 $69,600 $4,800 *Assumes 30 days per month Stock-Out Example
- 9. FBA Replenishment How many units do I send? PREVENTS EXCESS When do I order/ship more units? PREVENTS STOCK-OUTS
- 10. Not all items are created equal. Item Prioritization What are your most profitable items?
- 11. Forecasting Inputs • Lead Time • Sales Velocity • Stock-outs • Costs • Current Inventory • Inbound/In-Process Inventory • Safety Stock
- 12. Costs • Manufacturing/Purchase • Taxes, Duties, Import Fees • Processing (Bagging, Labelling, etc.) • Your time is money! • Inbound Freight • Advertising • FBA Outbound Fees • Amazon Commission • Storage Fees
- 13. http://bit.ly/prosper-forecasting Simple Example • Safety Stock • Reorder Point • RP = Safety Stock + (Lead Time * Velocity) • Days Until Reorder • DUR = (Current Inventory – Reorder Point) / Velocity • Number of Units • Units = ((# of Days + Lead Time) * Velocity) + Safety – Current – Inbound bit.ly/prosper-forecasting EXCEL TEMPLATE
- 14. • Options • Differences • Time is money! • Real-time Data • Velocity • Profit • Inventory Quantities – Fulfillable/Reserved/Inbound • Typos (one number can throw everything off) • Safety Stock • Stock-out Days • History (Graph) Amazon/Excel vs. Software Tool
- 15. Jeremy Biron web: www.forecastly.com email: jeremy [at] forecastly.com Questions & Contact Info
Editor's Notes
- The goal of this session is to make you more profit without increasing your total investment of the business. We aren’t here to talk about revenue. We’re here to talk about profit! Many sellers confuse profit vs. revenue, and it is a good habit to only focus on profit.
- Excess Inventory – I assume nobody here ever says “I have too much money”. Excess inventory ties up cash that could be better invested in Stock-outs – if you have zero stock-outs in your business then you definitely have excess inventory. Have you ever heard someone say “I just ship in 6 months worth of inventory so I don’t run out of stock”? Don’t follow their advice for inventory management.
- Initial Investment: $10,000 Profit: 50% ROI on sold inventory $11,475 additional profit through excess inventory reduction. Difference would be even higher if the profits were reinvested into inventory.
- An inventory stock-out on Amazon typically means a customer will buy the product from another seller or they’ll buy a completely different product if you are the only seller. They don’t wait until it comes back in stock like you are Apple. Stock-outs typically happen because you didn’t properly account for lead time when handling replenishment or there was variability in customer demand. Lead time is easier to predict than demand variability. Even Amazon, Walmart, and Target struggle at this.
- This is an example of a product (or group of products) that produces $200 of profit per day. In the first scenario the product is out of stock for 3 days each month. In the second scenario the product is only out of stock for one day per month. At the end of the year, the second product produces an additional $4,800 in profit.
- Inventory replenishment involves answering two different questions. Many sellers only focus on how many units to send to Amazon. However, the second questions (when to send) is actually more important. Answering this properly is what prevents stock-outs.
- Prioritization of items can save you lots of time and money. Items that don’t make a lot of profit each month can tie up cash. This cash would go to better use with more profitable items.
- Lead Time consider ALL time needed from order date to received Sales Velocity number sold each day, however it is important to consider Stock-outs proper sales velocity = ignore stock-out days Costs consider all costs that go into selling the item Current Inventory Used to determine when you need to order. It’s important to consider different types of reserved inventory. Inbound/In-Process Inventory Don’t forget about what you have already ordered or shipped. Safety Stock This is essentially extra stock that you have ‘reserved’ at Amazon to account for changes in demand or lead time variability.
- If prices or costs frequently change for your items then it is important to look at your costs for each replenishment order. This is common with wholesale resellers.
- Step 1: Calculate a safety stock number. This is difficult when doing manually. Something like half the lead time * velocity may work. Step 2: Calculate a reorder point Step 3: Calculate days left until reorder Step 4: Calculate number of units to order/manufacture # of Days = number of days of inventory you want to buy
- Using the combination of these formulas and Amazon reports is a great way to stay on top of your inventory when you are getting started. New sellers often underestimate the value of their time. As you grow your time will be worth more and it will take too long to run these reports manually. There are significant differences between doing it manually and having a tool to help. Time savings Real-time Data Sales Velocity – this is always up to date Profit – have the latest profit data as you are placing your order Inventory – know exactly what you have in-stock, reserved, or inbound. No need to question whether a shipment was received or not. Typos – A small typo in excel can easily throw all of your calculations off Safety stock – The proper calculation of safety stock can save significant money. The proper way of calculating will give you an exact number based on lead time, demand variability, and item prioritization. Stock-out Days – A software tool can analyze exactly when you were or were not in stock. This makes the sales velocity calculation extremely accurate. History – Every forecast involves a certain level of human input. Having historical data (velocity, ranks, price) at your fingertips can prevent costly mistakes.