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Common Inventory Management Strategies for Amazon

Feb 18

How did Amazon achieve such a booming success? In addition to managing over three billion products across 11 marketplaces, how do they maintain a growth potential of 30%? Amazon is expected to generate more than $135 billion in sales by 2022, and they are expecting to see sales growth of 27% year over year. However, even with the recent Covid-19 pandemic, these numbers still represent incredible growth. 

In the end, it's their fulfillment and inventory management strategy that sets them apart from their competitors in the retail and e-commerce sectors. As well as mastering the art of inventory management, their firm is known for driving innovation in the industry. Robo-warehouses and drones, as well as cashier-free stores with cameras and sensors, are contributing to the growth and competitive advantage of Amazon.

There is no surprise that Amazon is close to Apple and Microsoft as the most valuable publicly-traded company. While the company is relatively new in the omnichannel landscape, it is doing well despite the ever-changing landscape.

The following post discusses three inventory management strategies that Amazon uses in its business and how they can be applied to yours. Even though Amazon is well-positioned to operate at a high level, we can still gain valuable insights from the way they function. If you still need to learn more strategies that Amazon uses, contact us at Inventooly. 

What are the steps to implementing an Amazon inventory management strategy?

It is your goal as an Amazon seller to increase awareness of your brand while maintaining and possibly increasing revenue. To achieve this, you need effective inventory management. 

In order to deliver a perfect customer experience, your inventory management for Amazon

strategy must reduce costs efficiently. Here are the five most vital components of an effective inventory management strategy:

  • Getting to know your inventory
  • Availability of supplies
  • The components of the supply chain
  • Create systems to automate the process of resolving issues within those components
  • Developing repeatable, robust fulfillment procedures

When you invest in an Amazon inventory management strategy, your business can gain the following advantages:

  • By having your inventory and products ready, customers will come to you, and you will be able to consistently make sales.
  • Make sure your inventory is protected from losses, theft, and errors.
  • Projecting inventory needs in a confident fashion will result in a decrease in the cost of storing products or the loss of unsold goods.
  • Keep track of expiration dates in order to reduce lost revenue from unused items.

Making an inventory management strategy a part of your business plan will have a significant impact beyond Amazon. When your customers find you and like your products, they are likely to bookmark your site, become loyal customers, and even tell others about you. Additionally, by taking advantage of the visibility that Amazon provides to sellers, you can reach users worldwide. Inventory management for Amazon

There are three methods used by Amazon for inventory management

Management of lean inventory

Having just enough inventory to meet consumer demand without creating unsustainable levels of inventory is called lean inventory management. Managing your stock levels isn't the only step in becoming leaner. Other changes are also needed.

In order to meet the lean operations model, Amazon changed their warehouses as soon as possible to make it easier for employees to find, sort, and ship customer orders. Using inventory management software, they are also able to estimate customer demand and minimize stock-outs. The company's operating costs also dropped 17% in 2002, in addition to improving customer service.

To reduce costs, boost profitability, and enhance efficiency, they are currently fine-tuning their supply chain. As an example, they have developed advanced software to forecast regional customer demand. Also, they optimize their warehouse layout to make it easy to locate products that are often purchased together. One of their larger warehouses covers 1,264,200 square feet in Fargo, North Dakota. So their order picking and packing process takes a considerable amount of time.

We now turn to the next point, in which they work with different companies handling inventory and shipping.

Inventories managed by vendors

Vendor Managed Inventory (VMI) means suppliers stock up on items as soon as a product reorder point is reached. When stock runs low, Amazon automatically places purchase orders because it manages millions of SKUs. The supplier takes care of products in a retailer's inventory or an e-tailer's inventory with this method of inventory management.

Amazon is the most popular platform for third-party sellers. The company collects inventory from third-party vendors and stores it in its warehouses. The fulfillment process benefits all parties, from handling customer payments to packing and shipping. As a channel for vendors, Amazon merely provides a means to sell its products.

How does implementing VMI improve visibility and efficiency in your business? With min, max, and reorder points, vendors can keep track of inventory levels. With real-time reporting and analytics, vendors are able to analyze their performance more effectively. Consignment capabilities, such as order generation, billing, unit of measure conversion, and many more, can be included in a robust inventory management system. Deliveries are improved with vendor-managed inventory, and demand forecasts are more accurate with intelligent workflow.

Management of warehouses and third-party logistics

Probably the first thing that comes to your mind when you think of Amazon is a huge warehouse. Their warehouse operations must be optimized to handle all that stock. Fortunately, warehouse management and third-party logistics (3PL) are here to help.

A significant portion of Amazon's warehouse processes is automated, which results in more efficient task execution at every level. Is automation something you are interested in? In addition to paperless picking and packing features, warehouse management systems often integrate shipping functions and allow for return material authorizations (RMA). The use of custom labels and scanners can simplify and speed up long manual processes. As a result, workers are more productive, and processes are streamlined.

In recent years, Amazon has become a third-party logistics provider. Their purpose is to market their products to consumers and to sell them products. Additionally, the fulfillment centers ensure the items are stored, picked, packed, and shipped, and also take care of customer service, such as handling returns. Businesses can improve their operations in many ways by partnering with a 3PL provider. Using a 3PL with existing infrastructure and network can help you save time, money, and warehouse space. 

Conclusion

With its fulfillment and inventory management strategies, Amazon is dominating the industry on many fronts, so it's not hard to see why. Lean operations further reduce costs and reallocate resources to more profitable areas, so every business should follow them. In order to reduce carrying costs and improve overall order fulfillment efficiency, it is recommended to use VMI whenever possible.

If the idea of inventory management for the Amazon process makes you feel overwhelmed, you can contact Amazon professionals at Inventooly to do this for you.