How much inventory should I send to FBA?
Many people think: "As much as my Amazon inventory limits allow so I do not run out."
This article explores why this is a BAD strategy and how to optimize your inventory to avoid COSTLY problems.
On one hand you do not want to stock out of inventory and lose your momentum, but on the other hand, Overstock can lead to financially devastating consequences.
- Avoid overage inventory fees.
- Avoid the situation of having to do a dreaded removal order. See below for more info.
- Allow for maximum inventory security and flexibility.
- With FBMfulfillment.com as your partner, you can re-stock FBA with smaller quantities more frequently.
- Multiple smaller restocks do not cost you much more that a single large FBA replenishment shipment.
- Unless you are stocking up for Christmas, with inbounding delays and restricitons, consider smaller and more even quantities. Even at Christmas, be cautious.
- Use the FBA/FBM Hybrid strategy. https://fbmfulfillment.com/how-to-create-amazon-fbm-fba-hybrid-listings/
The best practice it to calculate Estimated Demand through Leadtime plus safety stock less excess inventory rounded up to the nearest full case qty.
Lead time: Since actual lead time, of stock stored at FBMFulfillment.com, is very short (compared to import):
- 48 hours pick/prep and ship +
- Transit time 3-5 days+
- Amazon FBA Inbounding time (Assume 7 days but can be longer during peak times)
So assume 14 days total lead time from replenishment work order to stock available to sell at FBA. A simple and practical approach is probably to do monthly replenishments.
Demand – Assuming you are going with a 30 day lead time, Calculate your average monthly demand? Depending on your sales history you can
calculate your daily demand and multiply by 30.4, weekly demand and multiply by 4.3 or monthly demand. Since this is a trailing indicator, you may want to allow for some REASONABLE growth. If demand is extremely volatile, monitor frequently.
Safety Stock – There are many ways to calculate safety stock, but the best way is to calculate either daily, weekly or monthly standard deviation of
demand and apply it based on how conservative you wish to be.
· +2 standard deviations = 95%
· +3 standard deviations = 99.7%
· +4 standard deviations = 99.999%
Assuming you calculate a weekly standard deviation at 99.7% confidence
[Weekly Standard Deviation] x [3] x [4.3]= Safety stock.
AMAZON REMOVAL ORDER IMPORTANT INFORMATION
It is important for customers to recognize potential issues (based on our own and our customer’s experience) associated with Amazon removal orders.
1. Removal orders are expensive. [Paid to Amazon to remove, package and ship your removed inventory]
2. Amazon does not usually store your products in the the original master cartons, therefore when they send it to us, it will not be packaged like your factory sent it. It may likely be packaged poorly and in random sizes. This often results in damage. They will often send products back in boxes that violate the 25″ max/side rule, and therefore it cannot be shipped back in that form.
3. You may need to purchase new master cartons and product cartons plus the labor to repackage.
4. The removal orders are often spread across multiple shipments, across multiple weeks. It is helpful if you share any tracking information, they provide you.
5. If you have multiple skus, Amazon has a history of returning them scrambled and it will require labor to unscramble them.
6. You cannot depend on accurate counts on an Amazon removal order. We will do our best to inform you of accurate quantities received. Due to the unreliable and messy nature, this may require labor charges. You should also reconcile sent vs received and file appropriate claims.
7. Amazon has a habit of sending UFOs. A UFO is someone else’s products in your removal order.
8. FBMFulfillment will provide condition information upon receipt and jointly we will discuss inventory remediation.
9. Note, once you authorize a removal, it is not cancellable or changeable.
We are sorry to be the bearer of such negative information, but it is our duty to alert you of what to expect an why you want to prevent having to do a removal order.
What can you do about it?
- Attempt to hold them accountable, but good luck. They are the mighty AMAZON
- Keep your FBA inventories low and replenish smaller and more frequently.
- Use FBA/FBM Hybrid strategy https://fbmfulfillment.com/how-to-create-amazon-fbm-fba-hybrid-listings/
