Ecommerce Stock Management: The Importance of Avoiding Out-of-Stock Situations

One of the most common – and costly – problems our customers have on Amazon is going out of stock or having products made unavailable, even if there is inventory on hand. These issues are part of broader ecommerce inventory challenges that can cost you between 3.5% and 7% of your Amazon revenue – in other words, a big deal!

Clearly, these are problems worth addressing. However, solving them with conventional analytics supported by manual processes fails in the face of the volume and pace of selling on Amazon. How many of your ASINs can your team check each day? Our studies have shown that addressing these problems without automation requires one person for every five to ten ASINs to be effective (and it’s usually closer to five) – and that’s just not economically viable.

For those of you using analytics – either those provided by Amazon or those from other vendors – how do you know which out-of-stock or unavailable ASINs listed in your reports to try to deal with first, regarding their importance to your business and impact on your bottom line?

There are two steps to minimizing out-of-stock and unavailable products and clawing back the hefty chunk of lost revenue they represent:

1. Detecting the problem
2. Addressing the problem with an ecommerce sales management platform.

Let’s look at each in turn.

But First, What is Inventory Management?

Inventory management involves the meticulous process of tracking and managing the stock of goods, products, or materials that a business holds. This process includes monitoring the quantity, location, and condition of inventory, as well as the movement of goods in and out of the warehouse or storage facility.

Effective inventory management ensures that businesses have the right products in stock, in the right quantities, and at the right time to meet customer demand. By keeping a close eye on inventory levels, businesses can avoid the pitfalls of stockouts and overstocking, ensuring a smooth and efficient operation.

Benefits of Good Inventory Management

Good inventory management offers a plethora of benefits that can significantly enhance a business’s operations:

• Improved Customer Satisfaction: By having the right products in stock, businesses can fulfill customer orders quickly and efficiently, leading to increased customer satisfaction and loyalty. Happy customers are more likely to return and recommend your business to others.
• Reduced Costs: Effective inventory management helps businesses avoid the costly mistakes of overstocking and understocking. Overstocking ties up capital and storage space, while understocking can lead to lost sales and disappointed customers. Striking the right balance is key to reducing costs.
• Increased Efficiency: Leveraging inventory management software can automate many tasks, such as tracking inventory levels and generating reports. This automation frees up staff to focus on more strategic activities, enhancing overall efficiency.
• Better Decision-Making: With accurate and up-to-date inventory data, businesses can make informed decisions about production, pricing, and inventory levels. This data-driven approach ensures that decisions are based on real-time insights, leading to better outcomes.

Detecting the Problem: You Can’t Solve What You Can’t See in the Inventory Management Process

How do you know when you are out of stock of an important ASIN, or your product has otherwise been removed from sale? Effective inventory tracking is crucial in managing stock levels efficiently and ensuring accurate information throughout the supply chain.

You can even remove a product when you have inventory on hand if enough customers have left it in their shopping carts but haven’t yet pulled the trigger on purchase (please see my colleague Kate’s excellent blog on Inventory Encumbrance to see how that works).

In the case of Andon Cord pulls, where a product has been pulled from sale by Amazon for any of a number of reasons (customer complaint or packaging issues, for example), Amazon does not typically inform you that this has happened, and, until you discover that it has, you are leaking revenue.

One of our customers experienced this firsthand when they discovered that Amazon had made a fast-selling ASIN unavailable without informing them and they had unknowingly been losing revenue on it for days.

In the case of out-of-stock ASINs, another of our customers noted, “We used to have someone working full time just manually checking for out-of-stock SKUs, which was slow, error-prone, and horrible for the person having to do it.”

If you are relying on reporting solutions to identify out-of-stock ASINs, how do you figure out which ones to deal with first? How much time and manual effort from an analyst (or from yourself) is required to analyze and prioritize this list? And how up-to-date is the information? We have been hearing from customers that the latency in many popular solutions is a week or more. How much revenue might you lose in a week?

Of course, the other problem with these approaches is that they are backward-looking, flagging problems that have already occurred, rather than alerting you to ASINs that are in danger of going out-of-stock, but where taking quick action can avert that outcome.

Ideally, a solution to the out-of-stock problem would identify out-of-stock and unavailable ASINs, ranked by revenue impact so you know where to focus your attention, and would be able to predict which ASINs are in danger of going out-of-stock so that you can take the steps necessary to preventing the out-of-stock from even happening in the first place.

Challenges of Inventory Management

Despite its critical importance, inventory management can be fraught with challenges, especially for ecommerce businesses:

• Managing Multiple Warehouses or Storage Facilities: Coordinating inventory across various locations can be complex and time-consuming.
• Tracking Inventory Levels in Real-Time: Ensuring that inventory data is always up-to-date is crucial but can be difficult without the right tools.
• Dealing with Stockouts and Overstocking: Balancing inventory levels to avoid both stockouts and overstocking requires precise planning and execution.
• Managing Inventory Across Multiple Sales Channels: Ecommerce businesses often sell through various platforms, making it challenging to maintain consistent inventory levels.
• Ensuring Accurate and Up-to-Date Inventory Data: Inaccurate data can lead to poor decision-making and operational inefficiencies.

Well, There’s Your Problem in Ecommerce Business – Now What?

There is a lament we frequently hear from our prospects – “How can you get Amazon to do anything? Even if you can identify an out-of-stock product, you ask your Amazon Vendor Manager to cut a PO, and he/she tells you that the algorithm runs everything, and he/she is powerless – it’s like, ‘talk to the robot hand!’”

Effective supply chain management is crucial in preventing out-of-stock situations by ensuring that the entire lifecycle of a product, from the acquisition of raw materials to the delivery of finished goods, is managed efficiently.

Here’s the thing about Amazon, though: it’s an extremely data-driven company. If you can present data showing that an ASIN will go out-of-stock in twenty days without an additional order, or that a key ASIN that is already out-of-stock means a loss of hundreds of thousands of dollars a week, Amazon will respond.

While it’s not at all the kind of conversation many of our customers were used to having with retail buyers in their brick-and-mortar channels, armed with the right data, you can work with Amazon to do what you jointly need to do to keep the Amazon flywheel flying. Some of our customers are even automating this process, countering the Amazon robot with their own robot.

Conclusion

In conclusion, inventory management is a critical aspect of ecommerce business operations. By implementing effective inventory management techniques and using advanced inventory management software, businesses can improve customer satisfaction, reduce costs, increase efficiency, and make better decisions. However, inventory management can also be challenging, especially for businesses with multiple warehouses or sales channels.

With a dedicated ecommerce sales management platform, businesses can take proactive steps to optimize their inventory management processes and achieve success in the competitive ecommerce market.