The Importance of Amazon Supply Chain Management
Inventory issues can tie up your Amazon sales, harm short-term and long-term marketing performance, and erode profitability, all of which makes inventory management a critical piece of a healthy Amazon business.
Kaspien’s supply chain network spans 9 countries across 3 continents and includes access to warehouses, distributors, freight carriers, product prep facilities, and marketplaces. Our logistical infrastructure is supported by data analytics from over 1 billion data points processed daily and machine learning algorithms. Our retail partners benefit from our enterprise resource planning (ERP) software, warehouse management system (WMS), listing tools, and other integrations.
To put it shortly, we know a thing or two about optimizing the Amazon supply chain. In this post, we’ll share a little bit about what goes into managing Amazon logistics successfully.
Managing the Amazon Supply Chain Effectively
Managing Amazon inventory effectively requires a combination of proactive and reactive strategies, leveraging tools that are directly related and adjacent to supply chain management. There’s a lot to unpack, so let’s dive into some of the most important pieces.
Accurate Inventory Forecasting
Accurate inventory forecasting is essential because it protects brands from running out of stock without severely overstocking. Amazon’s fulfillment centers charge storage fees and fulfillment fees. When manufacturers ship too much inventory into FBA centers, inventory stagnates, driving up storage costs that erode profitability.
When brands send in too little inventory, they run out of stock. In addition to losing sales, out-of-stocks have other implications as well:
- Marketing performance suffers. When a product is out-of-stock, product rank deteriorates. Because product rank influences both organic and paid marketing performance, running out of stock harms sales, even after inventory is replenished.
- Market share decreases. Shoppers turn to competitors when a product is out of stock. This compounds the impact to product rank, with competitors improving rank while your rank deteriorates. As a result, competitors are well positioned to seize and retain market share.
At Kaspien, we combine historical data from $1 billion retail sales, proprietary algorithms, and human expertise to ensure optimal inventory coverage.
Maintain Inventory Control with Distributors
Too many brands have learned the hard way that allowing anyone to sell their product can erode their brand integrity in both digital and physical spaces. Any seller carrying a brand’s product can list their inventory under the brand’s listing on Amazon. Once in the listing, the seller has free rein over listing content, including text and images. These can lead to inaccurate and low-quality content that tarnishes your hard-earned brand image.
To protect against this, brands should (re-)negotiate contracts with their distributors that limit to whom they can sell product. By maintaining an active relationship with trusted authorized sellers, brands retain inventory control and through it, control over their brand’s online representation. Brands currently facing difficulties with unauthorized sellers can leverage our price & seller tracking software or take more aggressive steps through unauthorized seller removal.
Brands should also enroll in Amazon’s Brand Registry program, which grants them access to additional marketing and brand protection tools, including specifying which sellers have approval to edit listing content.
Prepare Products Compliantly for Amazon’s Fulfillment Centers
Over 85% of top Amazon sellers use Fulfillment by Amazon (FBA), and with good reason. Products fulfilled through FBA are able to offer Prime shipping, which can be 2-day, 1-day, or same-day depending on location. Fast shipping speed is one of the most important factors for online shoppers, and FBA provides sellers with the infrastructure to provide it.
Of course, Amazon’s FBA centers have specific and stringent product preparation requirements. Failing to satisfy these requirements can result in inventory being refused, returned, or repackaged. This is a simple, yet essential step for selling successfully on Amazon.
If your brand lacks the capability to prep products compliantly, there are many FBA product prep providers able to assist. Kaspien offers such product prep services as well for FBA, WFS, and DTC.
Keep Inventory Moving
Amazon marketing is another key ingredient for maintaining healthy inventory. Marketing helps keep inventory moving, which grows sales, minimizes storage fees, and reduces unsellable inventory. Amazon advertising is the go-to tool for driving sales, but Amazon DSP, coupons, and Deals are all exceedingly useful tools for moving large amounts of inventory quickly.
Remove Unsellable Inventory
Speaking of unsellable inventory, it’s really not great for your account’s health. Unsellable inventory includes product that has been damaged, expired, or is otherwise unable to be sold. Unsellable inventory is a greater issue for products that are fragile, seasonal, or have a short shelf life.
To maintain inventory health and reduce storage fees, it’s best practice to proactively remove unsellable inventory. When an inventory removal order is requested, Amazon processes and ships the specified inventory within 14 business days, though this can extend to 30 business days during peak shopping seasons.
These practices are reactionary. Leveraging previously mentioned tools, like inventory forecasting and Amazon marketing, can greatly help to minimize unsellable inventory in the first place.
Amazon has penalized sellers for exploiting removal orders to send product to customers and influencers. Penalties include accounts being blocked from requesting removals in the future and even account suspensions.
Identify Inventory Reconciliation Cases
Amazon’s fulfillment centers regularly mishandle inventory without reimbursing sellers. While Amazon catches many of these errors and automatically reimburses sellers, they don’t catch all of them. Sellers who don’t want to lose money unfairly to Amazon’s mistakes have to manually identify and file inventory reconciliation cases.
You may think these errors are few and far between, but they quickly add up. On average, our inventory reconciliation software, Channel Auditor, reimburses FBA sellers 2% of topline channel sales. Especially for sellers moving a large inventory, 2% of topline sales is no small figure.
As such, inventory reconciliation for FBA is absolutely essential for sellers looking to maximize their Amazon channel profitability and optimize their inventory management.
Diversify Fulfillment Solutions
We’ve talked a great deal about FBA so far, but another critical piece of managing inventory effectively is having supplementary fulfillment solutions.
In early 2020, thousands of sellers were caught off guard when FBA buckled under the strain of the surge in online sales. Amazon restricted non-essential categories from shipping inventory into FBA, and the great titan Amazon was proven to not be indominable.
Sellers learned then the importance of having other fulfillment solutions. Those capable of fulfilling orders through Fulfillment by Merchant (FBM) or dropship were able to continue to meet consumer demand, while those who depended entirely on FBA were scrambling to find new solutions.
Similarly, sellers who use “just-in-time” inventory were also put at risk. While the practice minimizes fees and thereby maximizes profits, it left such sellers exceedingly vulnerable in what proved to be a surprisingly fragile supply chain. Holding larger storage volumes would have helped shield them from the worst of the disruption, as would having back-up fulfillment solutions.
Diversification is a long-proven tactic for risk mitigation, and it applies just as readily to ecommerce fulfillment as anywhere else.
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