The recent changes in Amazon Inventory Management Index surfaced uncertainty for the FBA Private Label (PL) aspirants. It increases the need to manage your inventory effectively and divert attention towards 2PL (third-party Logistics). So, you are left with either manage your inventory through FBA (fulfillment by Amazon) or 3PL.
Do you know that!
Whatever option you choose; the basic concept is the same. You send your inventory to a third party, and they handle storing and shipping it. Amidst recent inventory management fiasco, effective inventory management is the debate of the day.
This article will comprise of:
Let’s understand Amazon Inventory Management first.
What is Amazon’s Inventory Management?
Amazon’s Inventory Management is Fulfillment by Amazon, AKA Amazon FBA. It helps sellers to maintain, store and ship things to all markets. Amazon has created a state-of-the-art distribution system to run its warehouses.
Amazon’s warehouse Ecosystem
Amazon’s warehouse extended to hundreds of acres of land in and outside the US. Amazon has created an ecosystem to facilitate Amazon’s storage and shipment facilities.
The ecosystem of Amazon Warehouse comprises the following:
Crossdock centres: Foreign vendor’s packages stay there until the ful*lment centres require more stock.
Fulfillment Centres: this is the most known terms for the sellers. Space where your packages are stored, pack and ship for customers.
Sortation centres: where associates segregate customer orders for the final destination and consolidate them onto trucks for fast delivery.
Delivery Stations: the place where customer orders are prepared for last-mile delivery. It provides fast and everyday shipping to customers.
Amazon Prime Hubs: It is a time-sensitive item delivery system. These hubs take care of the items that are typically delivered within 2 hours of purchase.
Inventory Management by the Amazon
FBA is built on a sophisticated standard stock management system to make storage processes easy. Amazon has dedicated space for each category in a smart way. Surprisingly, Amazon has not sanctioned off in any discernible way.
Associates have warehouse map, and they know where the product to be placed when it comes to the warehouse. The technology-based system escapes all possible chaos through Stock Keeping Units (SKUs).
What happens when a product receives in Amazon Warehouse?
Here’s how Amazon receives, manages and ship your inventory:
Inventory Management in Seller Central
Seller Central has an exclusive window to manage your inventory. You can perform the following functions for inventory management:
- View and sort inventory
- Create, copy and edit listings
- Add and remove images,
- Merge, closing, or delete listings.
There are several free tools available within Seller Central, some specifically for FBA sellers, that can help with your Amazon inventory management.
The Restock Inventory tool serves recommendations to FBA sellers on products to restock. It further suggests order quantities and reorders dates.
Does Restock Inventory Important for the sellers?
Yes. The seller should consider the Restock Inventory tool recommendations for replenishment quantity and shipping dates to avoid getting out of stock. Reason: these recommendations are future forecasts of demands. The purpose solely is to fine-tune your inventory by adjusting inventory orders, shipment timelines and replacement frequency.
What is Fulfilled by Amazon (FBA)
Competing Amazon is out of the question for the 3PLs. The reason is apparent: Amazon is the top platform for ecommerce business. Its FBA model is the state-of-the-art inventory management system. Therefore, they will not let sellers ruin it through staying inventory for longer times, and affect the proficiency of the whole system. The induction of the Amazon IPI is a step forward by the Amazon to improve its inventory systems. Amazon FBA allows the seller to control the sales process. The philosophy is as simple as ABC: do the business right. Learn more about Amazon FBA PL – A Journey Towards Million Dollar Flip-Able Asset
Advantages of Amazon FBA
- Prime Access to Online Shoppers
Amazon FBA opens the door to millions of Amazon Prime Subscribers. Similar systems are placed within the FBA to provide many benefits. Prime Shipping is a huge differentiator in the customers’ buying approach.
- Customer Support
Excellent customer support will not let the seller, as well as customers, disappointed.
- Simple Fees and Integration
Transparency is the core of Amazon FBA model. Amazon informs you every fee to be charged.
Disadvantages of Amazon FBA
- Quality Control
Amazon has set standard shipping procedures, works on predetermined factors. Some sellers are reluctant to use FBA because standard procedures reduce seller’s control over the products.
Minimal Order Customization
Amazon’s Terms of Services are very much clear about packaging. It does not allow insertion or custom packaging to drive customer’s towards other products or your brands unless your techniques violate the Amazon policies.
If Amazon offers highly sophisticated services in its warehouse, it will charge the level of the services provided. The matter of concern is that prices are usually higher than 3PLs as well as prices also spikes in the holiday seasons.
Limited Direct Access
Reaching out Amazon is a hassle. You often direct to micro forums to fix your issues. It will take much time to fix the problems.
What is Third-Party Logistics (3PL)
Third-Party Logistics Providers are considering by the many FBA sellers due to changing in Amazon Inventory Management Index. The third-party logistics providers are the companies that handle your supply chain: inventory management, storage, shipping, returns and many more. Learn about Learn the art of Handling Returns, Cancellations, and Claims on Your Amazon Store
The FBA seller who wants to launch in Quarter 4, using aggressive strategies, have eyes on 3PL. They won’t get out of stock with the aggressive launch.
The feasible alternate to Amazon FBA is 3PL for now until you get improve your Amazon IPI index (FBA Inventory Performance Index: what exactly you need to know for 4th Quarter )where you allow to maximum stock inventory.
Choosing the right 3PL is essential. Analyze the professional approach of the company you intend to hire; see their resources whether they meet your needs. Few points may be inquired before partnering with a 3PL:
- Does my order volume exceed the cost of a 3PLs monthly fees?
- As to what extent outsourcing supply chain helps you?
- Does this company has experience of working with similar brands before?
- What shipping channels they are using?
- What level they attained in terms of using technology in inventory management processes.
Advantages of 3PL:
Warehousing and Fulfillment Centers
A well-established 3PL will ease your fuss of managing inventory. They would have sufficient space to manage your stock in the fulfillment centres. They often integrate technology tools to help you achieve your inventory daily and even hourly. In the competitive industry of supply chain services, they offer cheap service rates along with more extended tools of operation than Amazon FBA.
Due Attention to Your Products
Amazon is an e-commerce giant, running dozens of warehouses with hundreds of thousands of inventory packages. In contrast, 3PL are the small or medium scale enterprises with limited customers, and they can give personal attention to your products, easy to approach, and solve the issues quickly.
Working with a 3PL sometimes allow you to work with a group of experts to move your products.
Have you noticed this earlier?
Your product moves through the hands of professionals, and you keep abreast of every step your product takes.
In competing economies, many 3PLs offers numerous value-added services to boost their business. The services offered will help sellers to get extra functions. Like, some 3PLs offer packing inserts, in-person inventory counts and many more. They are also flexible in supporting different sales channels.
Reduced Shipping and Storage Rates
The best part of partnering 3PL is that it allows you to negotiate on the rates offered. They often come on lower rates if you have a large volume of inventory and the relationships you have with them. You can negotiate on each component of logistics services. You can choose different storage options, offering bulk storage, choose different shipping carriers, and negotiate on the packaging.
Disadvantages of 3PL
Erratic or Small Order Volume
3PL is profitable for those holding a large volume of inventory, or you can forecast the future flow of inventory comes in and out. If you are a new seller and maintaining small inventory, you can go with FBA.
The initial cost of a 3PL is considerable. It is based on either you pay per month, per SKU or depending on your 3PL. it would be best if you considered the following:
- Will, you pay a one-time fee, monthly or per SKU?
- How much will you pay after shipment received, either hourly, or else?
- How does 3PL charge; storage fee per Sq. Feet or per pallet basis?
- What are the charges for shipping carrier on single unit and bulk?
Common Inventory Management Techniques
No matter, if you are using Amazon FBA services of 3PL, you, as a seller, should well-aware of inventory management techniques to control your inventory.
Here are some helpful inventory management techniques for the sellers:
Economic order quantity
Economic order quantity (EOQ) calculates the ideal order quantity for company to purchase for its inventory. It involves different variables such as total costs of production, demand rates, and other pertinent factors.
Minimum order quantity
Minimum order quantity (MOQ) is the formula for the smaller amount of stock for a supplier willing to sell. Mean thereby, MOQ is the minimum threshold supplier offers to sell.
ABC analysis bifurcates subjects into three categories to identify units having a substantial impact on inventory costs.
Category 1 includes the most valuable products that have a significant contribution to the overall profit.
Category 2 comprises the product that falls between most and least valuable products.
Category 3 consists of small transactions that contribute to the overall profile.
Just-in-time inventory management.
Just-in-time (JIT) Inventory management technique helps sellers arrange raw material orders from a supplier following the production schedule. JIT is the solution of excess inventory and dead stock fiasco. It will help you manage your inventory on need-basis instead of ordering too much.
Safety stock inventory
Safety Stock Inventory will reduce the risk of incorrect forecasting or unforeseen changes in the product’s demand. It is extra inventory surplus to expected demand.
FIFO and LIFO
First-in, First-Out (FIFO) and Last-in, First-out (LIFO) FIFO works on the principle of older inventory is sold first, whereas LIFO works on the latter are sold first. Use these methods wisely.
Batch tracking technique is used to group stock based on similar traits. This technique is also used to monitor stock in terms of expiration of inventory and tracing defected items.
Perpetual inventory management
Perpetual inventory management is the basic technique. Count your inventory as it arrives and records manually on spreadsheets, or paper.
Demand forecasting is merely forecasting the demand based on historical sales data.
Cross-docking technique expels storage. It involves uploading material of the incoming truck directly to into the outbound trucks to create a JIT shipping process.
Bulk shipments method denotes to ship in bulk to avoid extra costs on the higher frequency of shipments.
Outsourcing fulfillment demands an expert to handle your inventory and orders. It is the main factor to determine your success or failure: it will allow you to get the inventory timely, reach to the customer on time, and cost-effecting storage solutions.
Many sellers get confused to choose between FBA or 3PL for outsourcing fulfillment. Amazon FBA might be a workable option for you if you have product that sell quickly. However, If you need extra control and flexibility over products, you are likely to go for 3PL.
There is no absolute answer which fulfillment option works for you. It depends on your needs, budgets, and sales volume.