These are two words that nearly every business owner or manager does not like to hear or talk about. Unfortunately, those two words are vitally important in E-commerce, and especially on Amazon. This can be a pretty big problem for brands that sell on many different online marketplaces because it can be difficult to manage the inventory needs and levels of many different platforms at once.
Sometimes companies get so caught up with the many different responsibilities that are involved in running an online business, that they forget one of the most vital and simple tasks, making sure that their products are actually available for purchase. Inventory management can also be tough for a number of other reasons. These include but are not limited to; very seasonal products where it can be difficult to predict demand, high growth companies that are selling products at an extremely fast pace, and companies that rely on manufacturing from a third party that is difficult to control or manage themselves.
What are the Direct Impacts of Going Out of Stock on Amazon?
There are several ways that Amazon punishes you for going out of stock, whether directly or indirectly.
Your sales ranking lowers in Amazon drastically upon a stockout, making it harder to climb back to where you ranking was after your product comes back in stock.
Amazon will decrease your Inventory Performance Index, which can hurt the number of products you can send and will give more priority to sellers that have a higher IPI.
Competitors will steal sales from your target customers, which will give them a higher ranking, giving them the edge in the Amazon algorithm for the time being. Amazon also gives priority when it comes to advertising for products who have more product in stock. Amazon increases both traffic and impressions for competitors with more stock than you.
As an FBA seller, if you have gone out of stock before you have even sent the next round of inventory, then you will likely be out of stock for at least another week if not longer. If you are familiar with the FBA process, you know that shipments can take up to 30 days to be ready for customer purchase and be live for Prime shipping. During the entire time period that you are not Prime, competitors are stealing sales from you and capturing your market share.
Due to the low customer brand loyalty that is typically found on Amazon, it is very easy to lose not just a significant amount of sales from being out of stock, but also market share even when you are back in stock.
How Can I Make Sure My Inventory Stays Stocked in Amazon?
The answer is simple in theory, stay on top of tracking and logistics.
Do the math and find out how many units your product is selling per day.* Then multiply that number by the week, month, quarter, etc to find out how much inventory you will need to stay stocked in Amazon for different time periods.
This must be done on a monthly, or even weekly basis to ensure that you are tracking the current market on Amazon and not a former period.
Send more than your calculations indicated. To ensure full inventory fulfillment send 10-20% more than you think you will need to based on current sales because you never know when your product could explode in sales volume, so you want to make sure you are ready for it.
Know the time period that logistics takes between each step of the process- from inventory sent, to being available for purchase. This will help you plan for the time lag in between sending inventory and customers being able to purchase.
Utilize Amazon's inventory recommendations, those should be able to give you a good idea of numbers you should be sending in, as their software gives recommendations based on inventory sell-through rate.
Still sound intimidating? Hire an Amazon Agency to consult you on when to send inventory and give constant updates on where you are in the inventory management process turning inventory management on Amazon into a passive exercise for you.
*Important: Make sure to note and plan for sales trends and seasonality of specific products. For example, planning must be done for events like Black Friday/Cyber Monday, in which sales will likely more than double.