Learn five common FBA inventory management mistakes and how to build better practices.
For many third-party Amazon sellers, the Fulfillment by Amazon (FBA) program is a godsend. In fact, FBA relieves so much of the fulfillment headache that it can provide a false sense of security. The fact of the matter is that even though FBA does a great job, you must resist the urge to “set it and forget it.”
Even with help from FBA, there’s still a lot of work to do, and you’ll want to continue to keep close tabs on most aspects of your business. There are five areas of FBA that often wind up mismanaged…and costing business owners precious revenue.
FBA allows you to put your Amazon store somewhat on “auto-pilot,” as you no longer need to maintain a local physical inventory. Shipping is limited to a certain number of Amazon fulfillment centers, and Amazon not only fulfills orders but also handles related customer service, including returns.
At the same time, the FBA market is fluid. Sales velocities change, competitors enter and exit, and margins grow and contract. Successful merchants find ways to respond accordingly. As an FBA business matures, the need for more active management grows. Merchants with regular supplier relationships must decide what, when, and how much of an item to stock – or restock. And, at a certain point, sellers need help, whether from Amazon’s Inventory Health Report, Amazon Selling Coach, or some other source.
The challenge of optimizing inventory -- the goal here being to neither under-stock nor overstock -- is not unique to the Amazon marketplace. Overstocking ties up capital, and Amazon also charges warehousing fees. On the flip side, though, understocking can lead to out-of-stock (OOS) items, which often equals both lost sales and customer dissatisfaction.
Optimizing your FBA inventory is no simple matter. An ideal solution would streamline decision-making, reduce risk, and drive profits.
Those businesses choosing an FBA approach often see changes in product margins. Because items sold through FBA are eligible for Amazon’s free shipping plans, FBA sellers traditionally have raised their prices to match the total price of their competitors, which includes shipping costs. Even after accounting for FBA’s fees, many sellers still find that leveraging Amazon’s infrastructure is less costly than building their own.
In general, however, FBA seller margins remain tight. That is due both to Amazon’s upwardly trending fees and to relentless competition driving down selling prices. And when both sales velocity and a seller’s total SKU count increase, it can become more difficult to keep tabs on margins and the profitability of individual items.
Since shipping and inventory are managed by humans, errors are, of course, inevitable. Running a tight ship is a matter of avoiding mistakes where possible, quickly identifying discrepancies, minimizing their impact, and making adjustments and corrections on the fly. To achieve those goals, merchants might need to retool parts of their operations.
The FBA program can simplify operations for Amazon third-party merchants, and it certainly reduces the physical labor and time required to run an online business. At the same time, however, it can increase other demands of the job. With potentially high sales velocities, large numbers of SKUs, and unique relations with multiple suppliers, FBA merchants must find ways to stay current with a tremendous amount of detailed and constantly changing information. Too much data, however, can induce a kind of “analysis paralysis.” In that case, a merchant may revert to a dangerously passive approach to inventory management.
Learn more about these five FBA inventory management mistakes and how to avoid making them in your Amazon business by downloading our free eBook.