Amazon inventory management has become one of the most important skills for the success of e-commerce. With a significant share of online sales flowing through this platform, knowing how to properly manage inventory has become an essential ability.
Amazon, moreover, has long ceased to be just a sales tool. Rather, it is a complex environment that rewards efficient sellers and penalizes those who do not optimize their stock management. Often, the difference between a successful seller and one who struggles comes down to the ability to balance three key elements:
- avoid stockouts
- minimize fees
- maintain an optimal replenishment flow.
In short, what makes the difference between a successful seller and a failing one is precisely inventory management. But how do you do it?
Let’s say right away that our experience with thousands of Amazon sellers leads us to say that inventory management is not an exact science. It actually requires intuition, data, and a deep understanding of the platform’s mechanisms.
Fortunately for us, Amazon has introduced increasingly sophisticated metrics such as the Inventory Performance Index (IPI) precisely to push sellers toward more efficient management. But, as we’ll see in the following lines, limiting yourself to analyzing metrics is not enough.
> Also read our article FBA or FBM, how to calculate the optimal stock quantity <<<
Warehouse replenishment forecasts
Having accurate forecasts is the first step to creating an effective inventory strategy. Without reliable forecasts, even the best operational strategy is doomed to fail. Hence, the need to reliably predict warehouse replenishment needs, balancing historical data, seasonal trends, and market insights to create projections that are as close as possible to reality.
Amazon can give you a hand with tools like the Restock Inventory tool and the Revenue Calculator. However, while useful, these tools are not enough for professional sellers, requiring additional interpretative and analytical efforts, which we are pleased to meet with our suite.
In particular, the methodology we recommend is based on a three-level approach:
- First level: analysis of historical data with special attention to seasonal patterns. Don’t limit yourself to the standard 90 days, but analyze at least 12–18 months of data to capture longer cycles.
- Second level: monitoring market trends through tools found in our suite, industry research, and competitor analysis.
- Third level: external factors such as promotional events, new product launches, and changes in Amazon policies.
On this basis, you can calculate a simple reorder formula that takes into account lead time, average daily sales, safety stock, and seasonal adjustment factors.
Reorder point = (Lead Time × Average Daily Sales) + Safety Stock + Seasonal Adjustment.
Some suggestions…
Safety stock should represent at least 20–30% of expected consumption during lead time, but can reach up to 50% for products with high demand variability.
Also keep in mind that an aspect not to be underestimated is managing variability. Amazon products rarely have linear demand. Events like Prime Day, Black Friday, algorithm changes, or competitor actions can cause sudden spikes or drops. For this reason, we always recommend implementing an automatic alert system that signals when sales deviate significantly from forecasts.
Another useful and often used approach is the so-called ABC segmentation. Category A products (80% of revenue) require more sophisticated forecasts and more frequent checks. Category C products can be managed with simpler approaches. Amazon uses a similar logic in its internal algorithms, favoring high-turnover products in recommendations and placement.
How to avoid stockouts and protect sales
Stockouts on Amazon are one of the worst situations that can happen to a seller. Not only does it mean an interruption in immediate sales, but also an event that has a long-term negative impact.
In fact, Amazon penalizes products that frequently go out of stock through:
- a reduction in organic ranking
- lower search visibility
- loss of the Buy Box.
Several studies show, for example, that a single 7-day stockout can take 3–4 weeks to fully recover lost positions.
> Also read our article Amazon Inventory Management: Warehouse Optimization Guide <<<
Better to adopt a proactive strategy
Thus, the anti-stockout strategy must always be proactive, not reactive. Waiting for inventory to fall below the alert threshold means waiting too long. Amazon, in fact, prefers to see a constant replenishment flow rather than large sporadic shipments. And this is precisely the approach that improves the IPI score and reduces the risk of inventory limitations.
To avoid stockouts, try to properly plan temporal distribution. During high-demand periods (Q4, promotional events), buffer stock should be 40–60% higher than normal. During low-demand periods, it can be reduced to 15–20%.
Also remember that it is good to adopt a daily monitoring system. Our tools offer various systems to help you understand how warehouse evolution is progressing, with easily customizable automatic alerts. Also use indicators such as the sales velocity trend, the sell-through rate, and the remaining coverage days to get a more complete picture of the situation.
Finally, always keep in mind good promotion management. A Lightning Deal or a Prime promotion can increase sales by 300–500% in just a few hours. Having a contingency plan with pre-positioned additional stock is essential. Amazon recommends increasing inventory by 2–3x during promotional events, but our experience suggests this may not be enough for high-demand products.
>> Also read our article European production hubs: which are the best for your sourcing? <<<
How to optimize fees and margins
Amazon fees often represent 25–35% of the selling price, making their optimization crucial to achieving expected margins and profits.
Here too, we can’t help but emphasize how Amazon’s fee system is complex and constantly evolving, with significant changes in recent years increasing fulfillment costs by 12–18% for standard products and up to 24% for oversized items.
Thus, understanding the fee structure is the first step to properly planning margins. Fees are divided into:
- referral fees (8–15% depending on the category)
- fulfillment fees (variable based on size and weight)
- storage fees (monthly and for long-term stock)
- and additional fees such as those for hazardous products, returns, and “stranded” inventory.
Packaging dimensions
That said, it is clear that optimizing packaging dimensions is an important but often underutilized component. A 20% reduction in size can translate into significant savings on both fulfillment fees and storage fees.
The timing of shipments is also highly relevant to optimizing fees. Storage costs double or triple during the peak season (October–December), making advance planning crucial. The strategy we recommend is to send 60–70% of Q4 stock by September. The rest can be sent in small “top-up” shipments.
Also consider the fees that penalize inventory left in warehouses for over 180 days, making active management of aging inventory essential through promotions, liquidations, or removal orders. Or, again, the fact that managing the IPI score has a direct impact on costs. Sellers with IPI above 500 can get storage fee discounts of up to 25%. Those below 400 suffer penalty fees and storage limitations.
> Also read our article Innovative packaging: new Amazon solutions for the packaging of the future <<<
Try our inventory management solutions for free
With these evaluations, and with the large number of metrics to monitor, it is clear that automation has become indispensable for managing complex inventories on Amazon.
As we have already pointed out, the tools available on Amazon are certainly a good starting point, but more professional sellers know very well how important it is to have more sophisticated solutions, such as those we provide in our suite, where you will find the most advanced and customizable tools to keep your inventory management under control.
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