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Originally published on August 6, 2021, updated August 31, 2021
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In this guest article, McClain Warren of Movley explains how safeguarding your Amazon supply chain strategy can help you stay in stock throughout busy seasons like Q4.
Do you remember the first time you ever set foot in a gym? You probably felt all prepared with your music playlist of '90s grunge rock, your Lululemon workout gear, and your custom-fit ASICS. You probably even posted something on IG about “New year, New You.”
Only, when you got there, you were hit with the distinct, overwhelming smell of sweat and Gold Bond and all the machines looked completely foreign and intimidating, suddenly rendering you not-so-confident or prepared.
Selling on Amazon can feel a lot like that, particularly when it seems that the marketplace powerhouse is continually changing the rules. This is especially true this year, as all of us are navigating the backlogs in manufacturing and shipment as well as managing stock and inventory levels.
Last year, as many of you know, Amazon imposed a 200-max storage limit directly correlated with international supply chain issues as a result of COVID-19. In April 2021, Amazon announced Account Level Restock limits (not to be confused with inventory limits). Most sellers have no real concept of what all that entails and how they will be affected by this, but James McConnell provides an excellent explanation of what to expect regarding these updated guidelines — including misconceptions as to how Amazon calculates restock limits.
Really, this all boils down to one important bottom line: Amazon is in the business of selling, not storage. It makes money when you sell your products, not by keeping them in its warehouses and collecting dismal warehouse fees.
The main takeaway you need to know is that the key metric in Amazon’s Restock Algorithm is Turnover (a.k.a. Days of Cover or Days of Stock, which takes into account when an item is added to a shipment, not when it arrives at FBA). In order to increase your restock limits, it’s not as simple as just selling more products — your sell-through ratio has to increase.
Some sellers have had success increasing their restock limits increase due to their use of multi-channel fulfillment. In other words, using FBA to handle inventory for other platforms like Etsy and eBay.
How else do you fix these new restraints? To increase your turnover, start by sending in smaller quantities of your product on a more frequent basis. Then, shorten the timeframe between adding an item to a shipment and having it checked in at your Amazon facility. Try to manage your inventory so that your total quantity inbound and at Amazon is under 30 days worth of stock (or as close as possible). Of course, this is much easier said than done with the compounded manufacturing and shipping delays that are occurring, particularly in places like India where COVID is rampant.
eComEngine’s RestockPro can help you stay in stock with more accurate forecasting and restocking suggestions. Learn more about the smarter way to streamline your FBA inventory management today.
This may not be a huge deal for many sellers right now, but this does perpetuate high anxiety for most when planning for Q4. So, what are some measures you as a seller can take right now to try and transition into a smooth final quarter? Good question.
As specified earlier, Amazon is not in the business of storage, and with the need for a continual supply of small inventory trickling in, it’s a really good idea to find a third-party warehouse that has the ability to hold larger and more pallets.
The number of units you have placed in the queue for shipping is calculated in your utilization ratio, so cancel any inbound shipments you aren’t planning to send in.
Remember: Your sell-through ratio is calculated based on shipping, so if you are afraid that your manufacturing company can’t produce smaller orders in shorter increments of time, an option to look into is having access units stored in China so that your units of shipping remain low. Of course, this doesn’t always make sense financially, but look into the numbers and see if it’s worth it.
One way you can do this is by moving your stock to the US before you begin adding shipment labels to boxes. Also, consider working with a 3PL or freight broker to have your shipments delivered to FBA faster.
It’s easy to get so caught up in other aspects of the supply chain and logistics that you cut corners or fall short with your inspections. Plus, it can seem like just another added cost when you are more thorough or add more steps to the inspection process. Even more commonly, if you’ve been dealing with the same manufacturer with the same product, it may seem more convenient and fiscally responsible to just have your factory do the inspections. However, not taking inspections seriously (particularly during Q4) is a huge mistake that can have dire consequences for your business.
While your restock limits may increase by utilizing MCF, that doesn’t mean you still won’t have issues with your supply chain and storage, particularly with COVID issues, shipping delays, and Q4 coming up. Thus, you want to do everything you can to avoid any potential bumps in the road that might hurt your business. This is why it is crucial to have a properly run inspection process.
It’s easy to fall into the trap of trusting your manufacturer to supplement their production with inspections, but it’s definitely not recommended. Yes, your manufacturer should be doing inspections anyway, but at the end of the day, they are looking out for their own best interests — not yours. This means many products can sneak past that don’t meet you or your customers’ standards.
Hiring a third-party inspection company is like hiring someone to be the eyes and ears for you. Not only is it vital to have your inspector perform a thorough pre-shipment inspection, but it’s highly suggested to do a mid-production inspection as well. Why? Well first...
A mid-production inspection is exactly what it sounds like: It’s when an inspection takes place during the production process. For example, an inspector goes in at 5%, 20%, and 50% of the production completion and randomly tests a sample size. It’s much less expensive to go in and correct faulty products at this stage than if the entire order is completed. This is particularly recommended for first orders, high-risk orders, every order for high-priced luxury items, and any company that has a lower risk tolerance.
In short, mid-production inspections cut down on turnover time if there are issues with quality control during assembly. Yes, it adds time to the actual inspection process, but that’s peanuts when compared to how long it will take to correct an issue upon completion.
For example, if you decide to do mid-production inspections, your inspector will come in at different times during the developmental process and check that there aren’t any issues. This is especially important at the critical point, which is when your product has surpassed the point where any defects can be easily corrected. If you only have your inspector check the quality of your products after the critical point (i.e. pre-shipment), then if there are issues with quality, your manufacturer will very likely have to start the production process all over again.
Even worse, if inspections are done only during the pre-shipment phase and the inspector clears the cargo for shipment, then any defects that weren’t caught will now be in the hands of your customers. This leads to bad reviews, high return rates, and even more of a headache from trying to get your inventory under control while also juggling the issue with FBA restock limits.
When it comes to quality control, it's often not feasible to inspect every single shipment (unless that particular batch is very small). That would be a waste of money and time. Many inspection companies won’t be transparent about this, as more units tested equals more money in their pocket. This is where Movley takes a very different approach. When we tell you it’s not necessary to test out a certain amount — we mean it.
The truth is, rarely does a 100% check provide much more information than a statistically representative sample. So, the question is: How many products within your batch make for a statistically valuable sample size?
The acceptable quality level (also known as AQL) is a measurement applied to products and defined in ISO 2859-1 as the “quality level that is the worst tolerable.” The AQL is often shown as a ratio of the number of defects compared to the total quantity of products and tells you how many defective components are deemed acceptable during random sampling quality inspections.
There are three levels for this (I, II, and III) with I being the smallest sample size and III being the largest. Obviously, the fewer samples you test, the less time it takes and the more money you will theoretically save. On the other hand, a low sample size provides more room for error which might cost you a lot more in the long term. Thus, it becomes a matter of your risk tolerance or threshold.
It’s incredibly important that you do everything you can to safeguard your inventory and implement the processes listed above to ensure a smooth Q4. As any veteran seller will tell you, Q4 is chaotic even when things are running smoothly. But with all the added pressures associated with this particular Q4, keeping up with all the changes and protecting your business with a strong Amazon supply chain strategy has never been so important.
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