In this article we are going to cover how to manage your Amazon Inventory so you don’t go out of stock. Going out of stock means lost sales and lost rank. Follow these tips to keep your product in stock.
How to calculate your reorder size.
The best calculation for how much you should re-order is:
Average Sales Per Day x Lead Time to Re-Stock in Days
If you sold 10 units a day the last 30 days on average, and your supplier needs 60 days to make the product and 30 days to ship it, you are going to need to re-order:
10 units a day x 90 days restock time = 900 units.
If your sales stay the same, you could place a new order every 90 days for 900 units – and just as the old stock runs out the new stock should arrive.
Ordering more to save cost
The above calculation is the simplest way to estimate reorders. But this really depends on your business and product. The way we calculate reorders is to try to have the next 3 months of stock arrive just as the previous 3 months sells out. Just in time.
Our suppliers lead time is around 2 months with delivery. But ordering over 3000 units gives us a cost benefit. Shipping costs less and the product costs less. It also means we only have to order 4 times a year.
So if we sell around 1000 units a month of an item, we might order 3 months x 1000 or 3000 units every quarter. But before placing an order we take into account the following important factors below too!
Sales Speed
Are your sales increasing or decreasing?
If sales in January were 800 units, February 1200 units and March 1600 units – using the average of the last 3 months might make you order too little product.
If sales are rapidly increasing – order based off the last 30 to 60 days sales average. If sales are steady you can use a longer time frame like 90 days. Adjust your reorder based on how things are going for your product.
A quick way to see this is to calculate how many units you sold in each of the last 3 months and compare the data.
Buffer Stock
Sometimes, bad stuff happens. Your shipment is delayed. Amazon takes more time to process your inventory into their warehouse. Your supplier is busy and your lead times get extended. Lots of things can go wrong and they sometimes do.
I think it is always best to have a bit more stock than you think you need. We keep 2 to 4 weeks of extra stock in Amazon at all times. This way if there is a sudden increase in shipping time, some delay, at least we can cover sales for an extra 2 to 4 weeks.
What numbers do you need to know?
I use CashCowPro to check my inventory levels frequently. I can see how much stock I have and when it will run out right in the Dashboard.
Another great feature is the inventory section itself. For each product you can see how many you sold per day over the last 3, 7 and 30 days.
Not only can I see how many units are selling per day, but based on my average sales it gives me an actual date when my current stock will run out.
Seasonality
When re-ordering products it’s always best to double check the numbers. Maybe your product sells better around Christmas. You don’t want to base your re-order on your peak season – only to have the excess stock sitting in the warehouse. This ties up cash in 2 ways, firstly the extra money you spend on the stock and secondly the extra storage fees.
Holidays
Check your local public holidays but also your suppliers public holidays. China has the Chinese New Year around January / February (the dates are always shifting) – and factories can be closed for 1 to 3 weeks. Even when they reopen production can be slow. So factor in holiday time into your lead times when reordering.
Lead Times: Supplier & Shipping
During peak seasons – like the months leading up to Christmas, both supplier and shipping lead times can get longer. It is best to check in with your supplier 1 month before you plan to re-order to see if lead times have changed.
Sometimes ports can get backed up with trucks and boats trying to get in and out – and there have been times when this added weeks to delivery dates.
Conclusion
CashCowPro is an excellent tool for checking not only how many units you are selling by product per month and it also includes an inventory forecast about when you are going to run out.
It is always better to order a little more than you might need and keep some buffer stock in Amazon. Regularly check in with suppliers to get lead times. Most importantly you need to know your sales numbers to be able to work out when you should re-order.