Inventory management is critical to business success for FBA private label sales. Broadly speaking, this entails keeping track of the flow of your goods from either source manufacturer or warehouse storage to point-of-sale or directly to customers. Understanding how to manage inventory, related record keeping and minimize inventory costs such that supply keeps flowing to customers is critical to maximizing your FBA profits.

Inventory Management Basics

In a nutshell, inventory management is about balancing your business resources and supplies. You only have a limited amount of funds that you can use to expand, buy new stocks, research, etc. You want to keep your products moving so that you can continue generating a steady cash flow, but you don’t want to end up with too much or too little product in the process.

If you have too much stock (oversupply), you can run into several issues: Excess stock will take up space in your storage facility and cost you money. Having too little stock (undersupply), could put you in a position where demand is high and you have nothing to offer your customers (lost potential sales). This, in turn, could cause your clients to lose faith in your brand, and, in some cases, turn to your competition to get what they need instead. If those customers aren’t loyal, then there’s a chance any future sales will be in the hands of your competitors as well.

Maximizing Profits By Managing Inventory via FBA

Thus, managing your inventory requires you to watch different factors so that you can forecast demand and optimize your supply chain—making sure that products are selling, and that you keep your inventory at an operating “sweet-spot”. Online analytics tools such as Product SpyPro are very helpful for understanding product selling trends (daily sales, weekly sales etc.) for any category of products.

Inventory Management Styles

You’ll need a system in place to help you keep things running smoothly, and what you choose to utilize will depend largely on your business style and whether you are storing product onsite or not. Here are a few of the tried-and-true methods that businesses use to take control of their stock.

Accurate Response

This method requires you to focus on trends and analysis to forecast your needs and place your orders accordingly. You take a look at how quickly your stock is selling, use sales data to predict the trends (e.g. when and what quantity you’ll need to reorder) then act accordingly. Obviously, you’ll need to have sales history to analyze before you can make use of this method, which you can then compare against a “forecast period,” the amount of time you want to plan for in future.

Done correctly, the accurate response method can lead to increased delivery success and lowered costs. You’ll be ordering things in a predictable manner, so you will always have enough to fill your demands without going over, and won’t lose out on potential sales. Since you are keeping the stock at a “sweet-spot”, it leads to reduction in efforts needed to manage the inventory.

However, inaccurate forecast will have the opposite effect. You’ll find that your inventory is not matching up with your demand, and your business may well suffer from it. This is why many Amazon sellers turn to different kinds of analytical software that can help them make better predictions based on their sales data and other pertinent variables.

Back Ordering

In this style of inventory, you only purchase the goods once you have an order for them. You won’t have to worry about oversupply, but this method is seen as less-than-ideal for many sellers because of the substantial increase in wait time that you pass along to your customers. There is a chance that customers won’t want to place an order with you because of extensive time to delivery resulting in loss of potential sale. Nevertheless, you save substantially on the overhead needed to manage inventory. You can also batch multiple orders to start fulfillment, which, when combined with Drop Shipping (discussed later) can help cut down on the wait times normally associated with Back Ordering. This works best for larger items such as furniture etc. that customers might already expect to take a while to deliver and when combined with exemplary customer service, can actually work in your favor.

All you have to do is continue to keep the customer happy. Inform them upfront that your delivery times may fluctuate, and provide ample shipping notifications to keep them abreast of their orders. Try to hit all deliveries as best as possible, and, if you do miss a delivery date, apologize profusely to avoid confusion and a slew of angry buyers.

Bulk Ordering

This is a classic style of inventory management. You buy your products in bulk, store them yourself, and as a result are able to procure them at a cheaper cost. This works if a product is in high demand and you are certain you will be able to move large quantities but comes with the risk of oversupplying and being stuck with stock that you can’t move if the demand drops unexpectedly.

The idea with Bulk Ordering is to buy large quantities and move large quantities. If your product stagnates and starts collecting dust, you might be better off getting rid of it (perhaps by selling it at a drastically reduced price) and making way for another product that is about to hit peak demand. You can employ some measure of forecasting to help you manage your stocks efficiently.

Prioritize ordering: Do not bulk order products at random. Instead, gauge what has the highest demand and stock up on those products first to reduce your storage costs. Depending on how large your inventory is, you’ll also want to make use of inventory tracking software so that you know what you have and where it is at all times. This will allow you to fulfill orders quickly and keep from missing out on sales.

Drop Shipping

This is an agreement that you can reach with your supplier/manufacturer in which they will send products directly from their warehouses to your customers. Acting as a middleman, you don’t have to worry about storage costs, but you won’t have complete control over your orders either.

You won’t be able to personally examine the quality of the shipment. Your supplier will want to take a cut of the profits. Furthermore, if there’s an issue with the order, you can rest assured your customers will be making a complaint to you and not the manufacturer.

Fortunately, you can use Drop Shipping as a supplemental measure in addition to stocking your own inventory if you prefer. In this kind of hybrid model, you’ll order and store what you think you’ll need based on forecasts, and if demand outstrips your own supply, you can fall back on Drop Shipping so that you don’t miss out on sales.

You can also use Drop Shipping method to test the waters for new products. You won’t have to order them in bulk and can see if demand for the new product will be high enough to justify you stocking it yourself before fully committing.

Just In Time

This is one of the most popular methods for reducing costs. You supply what you need, and just before you run out of stock, you have your manufacturer send you some more to keep your business going. There’s a possibility that your operations could be disrupted if there’s a delay with your resupply, but, as mentioned above, you can supplement with Drop Shipping to get through sticky situations. Furthermore, you maximize your inventory space by having “just enough” to get you through your demands.

In Conclusion

Using inventory management to help you in your Amazon Private Label endeavors will help you maximize your profits in various ways. You’ll be able to cut down on the cost of storing items yourself, deliver on-time in a consistent fashion, and build a reputation as a quality seller that will further build your brand.

Remember that the approaches detailed above are not necessarily mutually exclusive. You can mix and match elements of different styles to develop a tailored method that suits your business model perfectly. Always watch trends like sales rankings and product demand to determine what you should order and when, and you’re likely to see a substantial increase to your bottom line.  Use online analytics tools such as Product SpyPro  to guide you on inventory levels when deciding to take on a new product line.