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Managing Sell-Through Rate and Inventory Cost on Amazon

Feb 16, 2018 2:34:58 PM

Anyone in the retail business surely understands the importance of effective inventory management. Too much inventory creates cash flow problems, while too little means stocking out and losing potential sales.

On Amazon, the importance of inventory management is exacerbated; sellers with prime-eligible products are faced with long-term storage fees if their inventory isn’t moving, while stocking out can cause the same seller to lose the buy box on critical listings. Inventory management is a delicate balance, but luckily Amazon has a few tools to help sellers plan effectively.

Sell-Through Rate

A key part of inventory management is identifying product sell-through rate, otherwise known as sales velocity. This calculation refers to the number of units sold over a specified time period. For example, if a product sells 10 units in 10 days, the daily sell-through rate would be equal to one, while the weekly sell-through rate would be equal to seven (1 unit per day x 7 days a week).

It makes sense, then, to compare a product’s sell-through rate to current inventory levels. If a seller has 14 units in inventory and a weekly sell-through rate of seven, the seller would have an estimated two weeks, or 14 days, of cover (14 units / 7 units per week, or 1 unit per day). By comparing sell-through rate and current inventory, as well as the time it will take for products to ship to (and be processed by) Amazon, FBA sellers can determine when they need to restock inventory.

Most of the details above can be found in Amazon’s most useful inventory report, “Inventory In Stock”. This report captures information for all active listings with two or more sales in the past 60 days. To access this report, Sellers can navigate to “Inventory Planning” under the Inventory tab, then select “View Inventory in Stock Details” in the “SKUs to restock today” card.

The default report view will include a weekly sell-through rate, as well as an estimated days of cover. Amazon also gives sellers the ability to change the date range from which sales velocity is captured. For example, sellers may consider capturing a 30, 60, and 90 day sell-through rate for their products. Capturing more historical sales data can help account for any unforeseen variability, but sellers also risk undercutting the true daily sell-through of their products.

Managing Inventory Effectively

Now that sellers know what data exists on the Amazon platform, it’s time to turn that data into actionable insights. There are a few practical applications of the inventory in stock report, including replenishing inventory and identifying overstocked product.

Identifying products that are on track to stock out is vital. Amazon is one of the most competitive marketplaces on the planet, and losing out on a listing’s buy box can be just as devastating as losing out on sales. Even when product inventory is replenished, there is no guarantee that a seller’s products will immediately re-gain the buy box.

There are multiple factors to consider when evaluating potential stock outs. The first, mentioned above, is comparing your calculated sell-through rate against the amount of inventory in stock. Additionally, sellers should identify a product’s lead time, or the amount of time it takes a product to reach Amazon’s inventory. Sellers will want to compare this lead time to their estimated days of cover to determine when it is appropriate to order more product.

The last consideration for sellers is some sort of safety stock value, often a number of “days of stock” based on sales velocity. For example, 14 days of safety stock might be 100 units for one product and 50 units for another. Safety stock provides sellers with an additional cushion should an anomaly occur in sales velocity or the fulfillment process; in particular, sellers have no control over the amount of time it takes Amazon to process product, and this interval can vary.

The other application of Amazon’s Inventory in Stock report is identifying overstocked product. Overstocked product will result in long-term storage fees, putting a huge dent in seller profitability. By identifying products with a high number of “days of cover,” sellers are able to pursue marketing strategies to move more inventory, such as advertising and price reductions.

Overall, inventory management is a crucial yet complex piece of the Amazon puzzle. At SupplyKick, we take a strategic approach to inventory management for all of our partners, and absorb any and all fees incurred from Amazon. Through demand forecasting and other analytical tools, we’re able to win the buy box, keep your products in stock, and ensure your long-term success on the Amazon platform. Learn more and get started with SupplyKick today.

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