Smart Inventory Management Strategies to Reduce Amazon Storage Costs

Regularly check the Inventory Age, Inventory Health, and Recommended Removals reports on Seller Central. The Inventory Age report can be found under Inventory Planning, while the Inventory Health and Recommended Removals reports may be accessed under Reports >> Fulfillment.

These reports will tell you how long individual products, identified by their unique Amazon Standard Identification Numbers (ASINs), have been in a fulfillment center and which products you’re better off removing from your inventory because they are or will soon be subject to FBA long-term storage fees.

The FBA long-term storage fee is essentially a penalty for items that have been in fulfillment centers for more than 365 days. The charge is currently EGP 40 per cubic foot, and it is levied on the 15th of every month. It is distinct from the FBA monthly storage dues.

Note: You can also avoid long-term storage fees through the first-in, first-out (FIFO) strategy of product movement. It’s selling your older stock first, minimizing the likelihood that the stock will reach 365 days in storage.

You want inventory to move fast and, for strategic reasons, you need to prioritize fast-moving products over slower-moving ones. The reason goes beyond revenue generation and profitability. You need to monitor how fast products are moving to ensure you’re maintaining stocks in a way that will help you avoid low-inventory-level fees.

The low-inventory-level fee is, at its core, a penalty Amazon levies on sellers that can’t keep up with customer demand. Stock-outs adversely affect customer experience.

It is based on the historical days of the supply metric. Specifically, it will be charged when both the long-term historical days of supply and the short-term historical days of supply are below 28 days. This means, if your long-term historical days of supply is 30, and your short-term historical days of supply is 24, the low-inventory-level fee will not apply, as you are not below 28 days for both.

The historical days of supply metric is calculated by dividing the daily average of on-hand inventory by the daily average of shipped inventory. The timeframe used for the long-term historical days of supply is the last 90 days, while the last 30 days is the context for the short-term historical days of supply.

You won’t need to calculate this metric manually. You will find it in the FBA Inventory page of the Amazon Seller Central Egypt.

Note: You’re likely to be charged the low-inventory-level fee if you sell seasonal items, as inventory levels typically crash after peak seasons. To get around this, you can send in additional units of stock, as much as you need to ensure either your short-term or long-term historical days of supply is more than 28 days.

As much as possible, products you’ll enroll in Amazon FBA must fulfill these criteria:

● Fast-moving
● Offers a high profit margin
● Has a high value-to-size ratio

Fast-moving items mean a lower chance of incurring long-term storage fees, while high-profit-margin products can bring in more money and help offset Amazon storage costs.

A high value-to-size ratio means a high quotient when you divide the product’s profit by the cost of storing it. Thus, compact and lightweight items typically have higher value-to-size ratios than bigger and heavier products.

You may be able to save money on bulk purchases from your suppliers, but remember that making big shipments to the Amazon fulfillment center means occupying more space. This will translate to higher monthly storage fees and, unless you can move all your items quickly, susceptibility to long-term storage fees.

Therefore, instead of making bulk shipments to Amazon, maintain your inventory at a good level by sending frequent, small shipments. Use actual customer demand data to determine how many units of a particular product to send and when to send them.

This type of strategy is called Just-in-Time (JIT) inventory management, which necessitates restocking your products just before you need them (i.e., just before the orders come in).

Note: Remember tip number two. Make sure you’re restocking sufficiently to avoid low-inventory-level fees.

Excellent Amazon inventory planning stems from the ability to forecast demand. For this, you need a demand forecasting tool, app, or program or Amazon’s built-in demand forecast tool.

Demand forecast tools, including the one in Seller Central, apply forecast models on product movement patterns, past sales data, and seasonal factors. They then predict future consumer demand or product sales, on which basis you can make restocking decisions.

Note: You need an accurate demand forecasting program if you want to practice JIT inventory management.

This is not related to Amazon inventory planning, but it can save you some money in Amazon storage fees.

The Amazon Fulfillment Center in Egypt has an FBA New Selection Program to incentivize FBA enrollment. Under this program, Amazon FBA sellers can enjoy the following benefits for an unlimited number of new-to-FBA parent ASINs they create:

● Free monthly storage for standard-size products: No monthly storage fees for 90 days for the first 30 units of every new-to-FBA, standard-size parent ASIN; the 90-day countdown starts on the day the first unit is received at a fulfillment center.

● Free monthly storage for oversize products: No monthly storage fees for 90 days for the first 30 units of every new-to-FBA, oversize parent ASIN.

● Free monthly storage fees for apparel and shoes: No monthly storage fees for 120 days for the first 100 units of new-to-FBA, small and standard-size parent ASIN classified as shoes and apparel.

There will still be monthly storage fees for the 31st unit and beyond for standard-size and oversize ASINs (or the 101st unit and beyond for shoes and apparel ASINs). However, this benefit can effectively minimize Amazon FBA storage costs.

Note: The FBA New Selection program is available only to Professional sellers. Used and media category products (e.g., books, DVDs, software, and video game consoles and accessories) are not eligible.

You can increase your Amazon store’s profits by lowering storage costs. You can achieve this with smart Amazon inventory planning. Specifically, you can reduce Amazon storage fees by removing aging inventory, adequately restocking fast-moving items, choosing your FBA products wisely, making small but frequent shipments to the fulfillment center, and accurately predicting demand.

There are many other ways to make your Amazon store thrive. Learn how by reading the Amazon Egypt Selling Guide and checking the seller university.