The Challenges with Forecasting and Restocking Inventory on Amazon
As we enter the fourth quarter, Amazon Sellers are in a flurry to prepare for the holiday season that lays ahead. They need to make sure they have done the proper forecasting and have procured or produced enough inventory to cover the busiest sales period of the year.
This begins with a lot of questions. How does a Seller anticipate how much a given SKU will sell? Does the product have a sales history? Is the competitive landscape or the products sales rank much different from last year? Will more people be shopping for this item this holiday season than last? All of this factors into the forecast for a given item.
If you plan to use the current forecasting system on Amazon, please note that it is far from perfect and won’t help you much in this regard. Here are the weaknesses we have experienced with the data Amazon provides, specifically with its Restock Report.
Amazon Doesn’t Recognize Seasonal Products
Amazon doesn’t recognize year-over-year sales data in Seller Central. Any forecasts they provide are based on how the item sold recently, generally the last 30 days. Case in point, if it is November 1st and you have just sold 1000 units of a Halloween item, Amazon will tell you to replenish 1000 units of that SKU. They will not factor in that you sold 800 of that unit last October and 20 last November. To counter this, you will need to know the sales history and seasonality of your products and adjust for it.
Amazon Doesn’t Recognize Non-Replenishable Products
If you have discontinued an item and have closed the listing or plan to after you deplete your stock, you will continue to see these items in Amazon’s Restock Reports. Amazon does not currently have a way for you to indicate that the item isn’t replenishable and keep it off your Restock Report. While this may not be a huge problem for a seller with a few SKUs, Sellers who manage hundreds or thousands of SKUs will find this infuriating and time consuming to manage.
Did you run out of inventory? Amazon’s restock numbers will not provide any calculation to cover what you would have sold at your sales velocity during the stock out period. Why is this an issue? Your data is ill-suited to future planning because it is incomplete.
Have you seen a general sales lift or drop across your catalog? You will need to make your own percentage adjustments to increase or decrease your forecast outside Amazon, typically on an Excel or Google Spreadsheet.
If you add a new item to your catalog and it sells through quickly, Amazon will not recognize the sales or stock status of this item within the Restock Report. If you rely on Amazon’s tools you will stock out on this item.
Inventory on Order
Amazon doesn’t count the inventory you’ve ordered until that inbound inventory is scanned by UPS at a distribution center. You will have to keep track of inventory that it counts versus the inventory that you have ordered so you don’t duplicate orders.
Amazon Will Relocate Bestselling Inventory at Critical Times
While it’s not directly related to a tool Amazon provides, another thing to note, is a frustration you will encounter if you have a bestselling item in an FBA warehouse during a critical seasonal sales period. You’ve worked your magic. You have accurately predicted your inventory and have it in stock at an FBA warehouse, only to have Amazon decide to transfer the entirety of your remaining stock during the peak of the season. Why? To the best of my knowledge, Amazon’s warehouse algorithms have recalculated demand forecasts and want to relocate the remaining inventory closer to the anticipated final customer. Without regard to the product’s seasonality or year-over-year data, Amazon doesn’t realize they are removing critical inventory during the peak sales cycle to transfer it between warehouses. When that inventory arrives at the new FBA locations the sales window will have closed and the inventory will not sell.
How do you combat this? Anticipate that this may happen for items you determine will be bestsellers. Overstock these items or send in additional inventory in time for that critical sales peak. If timed correctly, Amazon is unlikely to transfer that newly received inventory when people are actively trying to order the product. If you have a robust fulfillment center of your own, you can also offer FBM (Fulfilled By Merchant) as a backup plan.
How Sellers Respond
It is for these reasons that Amazon Sellers feel anguish over inventory forecasting. Within Seller Central there isn’t a simple system to get good and reliable restock information. Within the last year, Amazon depreciated its best report which was called Amazon Selling Coach, replacing it with the aforementioned and less useful Restock Inventory report. Amazon Selling Coach offered a lot more detail including sales over the last 14 and 30 days, inbound inventory and out of stock information. It is too bad that they chose to discontinue this report rather than improving it.
Once you determine that Amazon’s reports and tools aren’t the best method for forecasting and restocking your inventory you must make a decision on how to proceed. The options you are left with include manually reviewing the sales history of each SKU and creating your own forecast (typically in Excel) or finding a third party software solution that suits your needs. The latter option will cost more upfront but will improve your forecasts and save you hours of expensive labor.
The Inventory Software Solution
I searched for several years for an Inventory Planning software solution which would recognize year-over-year sales history, remove discontinued items, would understand stock outs and inbound inventory, would allow me to make manual adjustments to the forecast and treat new items differently than older items. Inventory Planner did all this and more. It was one of the few software solutions that I found that could handle the large volume of data that our enormous product catalog and deep sales history produced. Unlike other software it wasn’t exclusively designed for companies who practiced retail arbitrage and sourced their catalog from a host of other companies. We could use it for our own products within our own manufacturing process. It was the solution for us.
Inventory Planner streamlined our process for data analysis while allowing us to customize the software to our needs. We were able to organize the data to suit our unique business rules and reduce a three-hour mostly manual forecasting and replenishment process to twenty minutes.
Proper holiday forecasting and inventory planning still requires that you understand your market, position within that market and product’s sales potential. But it becomes significantly less difficult when you move beyond the tools that Amazon offers to the right software, which has been specialized for the task.
Good luck with your forecasting, inventory planning and holiday sales!
About the author: Gwen McShea is a seasoned digital marketing professional with over twenty years’ experience in e-commerce. She led the direct-to-consumer division of Ann Clark Cookie Cutters to seven figure Amazon sales and a Top 500 Seller status. She now serves as the President of Lean Edge Marketing an Amazon Consulting Company which helps other companies find growth and profitability on Amazon. Learn more at www.leanedgemarketing.com.
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