What is inventory? In a nutshell, inventory is a list of items such as stocks or finished goods, properties, raw materials, or contents in a building. Inventory Management, on the other hand, is a process where the goods or raw materials are ordered, stocked, used, and sold. As a seller, your Amazon inventory is one of the most important aspects of your business.
Amazon inventory can be both an asset and a liability. They are assets because these are goods that you can sell and earn profit from. On the other hand, they can become a liability, especially when in excess, because you incur fees from storage. Thus, it is crucial that you have an effective inventory management system in place.
Types of Amazon Inventory
As an Amazon seller, you should know that there are 13 types of inventory. In reality, inventory is only categorized into 4: raw materials, work-in-process, finished goods, and packing materials. All of these comprise the inventory that you have. However, in terms of Amazon inventory, you can only store finished goods in the FBA warehouse for distribution so raw materials and work-in-process are not part of the Amazon inventory.
- Fulfillable Inventory
This refers to the type of inventory that can be packed, stored, and sold to customers. A low in-stock rate does not necessarily affect the Amazon IPI score but you should still retain it at a fair level.
Here’s how you can compute for your in-stock rate:
% of the last 30 days ASIN1 was in-stock x 60-days sales velocity + % of the last 30 days ASIN2 was in-stock x 60-days sales velocity … (add the rest of the ASINS)
Divided by
Total 60-day sales velocity of all ASINS
- Unfulfillable Inventory
Unfulfillable inventory is inventory that cannot be sold to consumers. When your items arrive damaged or with damaged packaging, Amazon marks them as unfulfillable. Amazon will notify you of these items and you are given a 30-day period to submit a removal order.
Once the unfulfillable items are determined, you can resell them as refurbished, repackaged, or sold as new. This will help you compensate for the fees incurred in storage and shipping fees.
- Inbound Inventory
These items are marked as inbound will change to receiving then active. These are stocks that are already in-transit.
- Reserved Inventory
Reserved inventory is to ensure that your items do not go out of stock. You have to pay attention to your reserved inventory because this affects your restock limits.
To compute for your max ship quantity and avoid maxing out your restock limits, here is the formula:
Restock Limit – Available Inventory at FBA – Open Shipments – Reserved Inventory = Max Ship Quantity
- Excess Inventory
Overstocked or excess inventory is one of your liabilities. The excess inventory just sits in a warehouse that incurs storage fees and remains unused or unsold. The items may expire or get exposed to the elements which can cause them to be unsellable. Once they lose their value or become obsolete, losses are incurred. Thus, make sure to manage your inventory according to holidays and sales events such as Black Friday.
- Amazon Stranded Inventory
Items that are in your stranded inventory are unsellable due to the following reasons:
- Errors in listing
- Errors in pricing
- Inactive or closed listings
- Suspended listing
- Items are marked out of stock by Amazon even if there are still stock (errors in listing, product was added within the last 24 hours and hasn’t updated)
- Restricted products
- Marked as expired by Amazon
- Gated products
It is important that you always check the status of each item in your inventory. Watch out for items that are flagged due to the lowest price and have listing errors. Check the Fix Stranded Inventory tab, as well as Account Health.
- Buffer Stock
This is also known as safety stock and is stored in a separate warehouse in case there are shipping delays or increased demand. This will be helpful during unexpected extreme weather conditions and a pandemic.
- Anticipation Inventory
This type of inventory refers to seasonal demand such as summer wear, spring items, winter items and clothing, as well as special occasions such as Mother’s Day, Father’s Day, etc. There may be unexpected sales spikes due to a seasonal demand so sellers must have these stocks ready.
- Stickerless, Commingled Inventory
To commingle means to mix with other products. This is an optional service and you should be careful to apply the correct Amazon barcode to your products to prevent this from happening.
Commingled inventory means that your inventory skips the labeling process and is directly sent to Amazon FBA. The Amazon FBA staff then stores your inventory with other similar items. When a customer buys the product, Amazon gets it from the nearest fulfillment center so the item reaches the customer sooner.
The problem with this process is that, while the sale will be credited to you, it may not be the exact item you provided. When customers complain against counterfeit or damaged items, it may be accredited to you but there would be no way of disproving the counterfeit claim because there is no barcode that associates the product with you. This is where Amazon uses the Fulfillment Network Stock Keeping Unit (FNSKU) to track and link the products to the correct merchant.
- Amazon Meltable Inventory
Meltable inventory refers to heat-sensitive products such as chocolates, gummies, jellies, and wax-based products, thus the word meltable. To efficiently store these products and avoid waste of resources, Amazon FBA only accepts meltable inventory from October 16 to April 14. The products are maintained at a temperature of 75° to 155° F during summer to prevent them from melting. Meltable inventory that arrives from April 15 to October 15 are marked as Unfulfillable and will be subjected to removal fees.
In addition, perishable items such as fresh fruits and vegetables and meats that require refrigeration and freezing are prohibited the whole year.
- Restock Inventory
Restock inventory is the recommended quantity you need to send Amazon in order to remain in stock. The Restock Inventory Tool helps you by providing recommendations according to your sales history, forecast, seasonality, and replenishment. However, this tool is not accurate so it is still better to have your own process and system on how to forecast your inventory.
- Missing Units Inventory
Missing or Lost Inventory happens when shipment gets lost on the way to the fulfillment center. For example, a trailer may be bound to California when it is supposed to be in Texas. These shipments eventually get found but it takes time. You should be vigilant in determining lost shipment because Amazon should compensate you for the sale price of each unit less the Amazon fees.
Example:
150 units x $50 (item price) = $7,500 reimbursement fees from Amazon
However, if Amazon was able to find the lost items that you were reimbursed for, they will reverse the reimbursement fee that you received by deducting it from your next deposit. The lost items will be added to your seller account so you can sell them.
- Fulfilled by Merchant Inventory
There are instances when a seller does not use Amazon’s FBA service and decide to store their own products in a 3PL warehouse or their own warehouse. When a sale comes through, they manually send the orders to Amazon as needed.
Most sellers who’ve done this switch to Amazon FBA due to check-in delays and low restock limits. Plus, it’s less effort for the seller.
Conclusion
Inventory Management is one of the important aspects of being an Amazon seller. You should be able to effectively manage your inventory to avoid excess and unfulfillable inventory. Inventory is both an asset or a liability depending on the case. Be vigilant when monitoring your inventory and always check your seller central account for issues that may affect your listings. It is important to know the different types of inventory so you would know which to focus on and what needs to be done.
If you need more help in inventory management, give us a call and we’d be happy to help you. You can also check out our Amazon inventory management page for more details.
— Dave Chapelle
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