Amazon inventory is a crucial but neglected area for all Amazon sellers. We have Jeremy Biron with us today. He’s the founder of Forecastly. He has been selling on Amazon for over 10 years so he has a really deep understanding of the marketplace and of Amazon inventory management and the issues that can involve.
He was one of the first FBA sellers in the office supply space running a multi-million dollar operation. Jeremy has a strong knowledge of Amazon and what it takes to maintain your Amazon inventory.
Coming out of college about 15 years ago, Jeremy was working in the corporate world doing marketing and sales. Quickly realized that the corporate life wasn’t for him. He got into selling Amazon inventory part-time while working the corporate job. He happened upon office supplies. Not the sexiest products but he found a place. He realized that he could make more money selling on Amazon than in his full-time job and he enjoyed it much more.
He started selling full-time 8 years ago. Then, about 2 years ago, the office supply space wasn’t going in the right direction. He heard from a lot of other FBA sellers about their Amazon inventory issues. Jeremy had the answer. He had custom software they used in-house. He decided to take this software, improve it so it could be mass-distributed, and began Forecastly.
It was a combination of stock-outs and excess Amazon inventory. At first, they were just using the reports you get from seller central. It shows how much you have in stock and how much you sold in the past, like 30 days. It would be 30 days later, after he had placed all those orders, and looked at his profit and loss and think that he should have sold more. As it turns out their estimations were off. He knew from the beginning that using the inventory reports from Amazon wouldn’t cut it.
A lot of the time, those aren’t accurate. Looking at your current Amazon inventory and your inbound numbers. You inventory is usually right, but your inbounds number aren’t. They didn’t know exactly what was going into Amazon. What status was it in. Even looking at your existing Amazon inventory, you can’t tell if it’s being labeled, is it moving around the country, or is it reserved because it’s already been sold. If I have 100 units, and 10% has already been sold, I really have 90.
The other piece of it is figuring out your sales velocity. That’s not as easy as many people think it is. Let’s say you sold 50 units last month. If you don’t know if you were in stock the entire time, your don’t know your true sales velocity. If you sold 50 in the last 30 days, but you were out of stock half that time, you should have sold 100. However, those reports are saying you sold 50, and if you want a 30 day supply, you should buy 50 more.
The last piece to this is taking that demand forecast and building a replenishment strategy off it. Knowing when you’re going to run out of stock.There isn’t an Excel spreadsheet that will tell you if you’re going to have a spike in sales. The only way to do that is by using a database and running some crazy statistical calculations.
This is something Jeremy sees a lot of mistakes with. Even if you’re an experienced private label seller and you’re bringing out a new product. It’s tough trying to figure out how much to order. Some things you want to think about when releasing a new product
You want to consider payment processing. Your money doesn’t show up immediately. Sometimes it takes a couple days to process your payment with the bank. The suppliers won’t do anything until that payment processes.
How long will it take for the factory to actually make the product. Is it going to be reliable? Will it take the length of time they quote you.
Preparation of shipping. If you’re placing a large order, it’s going to take time to process that shipment. Then sea or air time. Then is has to come through customs. There can be a lot of delays here. Then is has to be sent to Amazon where it will sit on their dock until they can receive it. If you send it to your house first, or a third-party preparer, all that takes time.
People will underestimate their lead time, and throw off the whole process. That goes for existing products as well.
Just to underline how important this is, it will always take longer than you expect. If a factory quotes you 2 weeks, it will likely take longer. They will tell you what you want to hear. If you send it to a prep facility, it could sit there for 3 weeks. Don’t underestimate receiving time at Amazon if it’s around Christmas or other holidays.
In terms of reality, it’s going to come down to you putting some pressure on them. Communication is key. Contact them saying that you’re going with them. You like the communication so far. How likely do you think we’re going to hit that three week mark? Should I account for an extra week in there? They’re people too. It will put them at ease knowing that they got the order and don’t have to tell you what they think you want to hear. There really isn’t a magic formula because each supplier is different.
You can add in a late delivery penalty. Let them know that it’s your company’s policy that there is a 10% penalty for every week past the deadline. You see this difference between new and veteran sellers. If you ship an order to Amazon and it’s late, you’re going to be hit with a charge-back. This is also dependent on your payment agreement. If you pay everything up front, you can’t go and take that back. Whereas if you make a partial payment before delivery, it’s a bit different.
The main point is to get a straight answer out of them. They are likely to be more honest if they will get less money if they try to be overly-optimistic. Most terms I recommend is 70% up front, and 30% balance.
One point Jeremy wanted to make sure to hit on is about new product and why lead time matters. It’s not lead time for your first initial order. It’s thinking ahead to your next order. Let’s say your very first order arrives today and you have a 45 day lead time. Now you have to think about your next order. If you didn’t order enough units to get through 45 days, you will run out of product. Even if you place a PO today.
You don’t want to place another order for 30 days. If you have a 45 day lead time, you have to order enough for 75 days of inventory. You don’t want to over-order inventory, but you really don’t want to run out. There are a lot of sellers that always order 100 units, or 1000 units. They’re just making up a number. Jeremy recommends looking at JungleScout. If you’re shooting for a rank of 10,000 in the office products category, you can look on JungleScout and estimate how many units you’ll sell in a day.
Exactly. They have a free Excel spreadsheet that you can get at forecast.ly/amazingfba. It’s a simple sheet that tells you what your lead time is, and when you’ll want to place your next order. The last piece on top of that is safety stock. That is a complicated thing so we won’t go into too much detail. Essentially, it’s insurance against a stock-out. If you think you’ll sell 10 units a day for those 75 days, then you’ll buy 750 units as your initial order. Depending on your level of cash, you’ll bump that up. You may want 10% safety stock. So you’ll add 75 units, just in case sales are higher than expected.