March 31, 2023

The Importance of Accurate Inventory Management for Amazon Sellers

Accurate inventory management for Amazon sellers is critical for maximizing profits. Learn about key Amazon inventory management and bookkeeping tools here.
The Importance of Accurate Inventory Management for Amazon Sellers
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Did you know that more than $450 billion took place through Amazon in 2021 alone? With a number like that, being able to sell on Amazon is essential to many businesses. Your business can gain more exposure and reach clients that wouldn't be possible through another medium.

But with the massive benefits of Amazon come the logistical issues of merchandising, accounting, and inventory management. Failure to handle this will result in major supply chain issues that can cost you customers.

Read on to learn more about Amazon inventory management and how useful tools like Amazon Accounting and Amazon Bookkeeping can make your life easier.

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Why is Inventory Management Important?

Having the right amount of inventory is about finding the right balance. Too little inventory and you risk being in short supply and delayed delivery times. The downside to having too much inventory is that you incur a massive overhead.

Depending on the product you're selling, spoilage could be a concern. Always conscious of the bottom line, excessive storage costs are another effect of poor inventory management.

Amazon Inventory Management

One of the major advantages of working with Amazon is its extensive network of large warehouses and distribution centres. Factor in a large network of supply chain workers and you'll have plenty of support.

One of the major tools that Amazon offers to sellers is Fulfilment By Amazon (FBA). This tool includes Seller Central, which provides a dashboard with many helpful features. You can access this tool through the Internet or via a mobile app.

One of these features is an alert sent out when supplies are running low. This dashboard performs other crucial tasks, including tracking sell-through rates, alerting you to when your inventory is old, and recommending actions to optimize storage.

Another benefit to using FBA is that you gain access to Amazon's advanced machine learning software. Through advanced metrics and data analytics, your inventory management is scored and you are given advice on what improvements you can make.

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Amazon Bookkeeping and Amazon Accounting

An offshoot of the FBA program, Amazon Bookkeeping is an all-in-one service that replaces many e-commerce and accounting services. The first benefit to this is cost savings. Whereas using many services can run several thousand dollars monthly, this service tops out at just around $1,000 per month.

Another benefit of this programme is how quickly it gets up and running. After a quick onboarding session, it usually only takes 24 hours to get your business integrated. Support is available around the clock.  

Some of the items tracked by Amazon bookkeeping tools include:

  • Sales and refund tracking
  • Amazon fee tracking
  • Shipping and fulfilment
  • Advertising

Considerations with FBA

With the demand from sellers to use Amazon, there is a finite amount of space. Due to this limitation, there are capacity limits to what you can have in storage. Limits are set each month and one determining factor is your Inventory Performance Index (IPI) score.

The IPI is based on your efficiency and productivity with inventory management. Several factors contribute to this score, including:

  • Storage fee avoidance
  • Issue resolution
  • Maintaining storage
  • Avoiding excess stock

While these items may sound difficult to track, Amazon offers advanced metrics to help. One of these metrics is the Estimated Total Storage Cost. This figure is the total cost of leaving your current inventory in storage for three years, including storage fees.

The higher your IPI score, the better, with the maximum score being 1000 and anything over 400 considered good. There are methods and best practises available to help you improve your score.

woman using calculator

Inventory Management Tips

Even with all the support and technology available at Amazon there are other steps you can take to improve your inventory management. These include:

Quick Restocking

If you have an in-demand product, this means that your inventory gets depleted quickly. Your ability to restock it quickly is essential to being a reliable seller. This necessitates having a strong production process.

Moving Ageing Inventory

When inventory is ageing, you need to be able to sell it before it spoils or becomes obsolete. This requires specials or discounts that move the product while limiting the losses in profits.

Tracking Your Margins

While making money is the end game, you must maintain a healthy margin. This means tracking your operating costs to compare against the profits. The larger the margins, the better your business is doing.

Maintain Relationships

Having a professional relationship with suppliers is the best step you can take for inventory management. This includes paying your bills on time, maintaining good lines of communication, and referring new business to the supplier.

Other Considerations

Even with everything you know now about Amazon inventory management, you should consider all your options outside of the FBA tool. If you have accounting or bookkeeping experience, it might be more cost-effective to handle this on your own. Just be aware of your limits and be prepared to upgrade as your business grows.

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Are You Ready for Amazon Inventory Management?

Now that you know about the Amazon accounting and bookkeeping services that are offered, what are you waiting for? In addition to supplying a good product, you must be effective at maintaining your inventory. The tools offered through FBA can help with this.

No matter what assistance tools you use, you should always consider the cost. Basic best practises, such as maintaining good supplier relations, can go a long way.

If you're ready to take your inventory management to the next level, contact us to get started.

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