When it comes to managing inventory on Amazon, there are plenty of inconsistencies that can cause problems. Sellers often have little to no visibility into the demand of products, resulting in ongoing supply issues on the backend. If products are moving slow, brands can be subject to hefty storage fines from Amazon. Plus, if a manufacturer creates more products than it can sell, the leftover inventory can drive down prices. These are just a few of the issues brands face when it comes to selling on the Amazon Marketplace, the Walmart Marketplace, and beyond—but it doesn’t have to be this way.
For brands selling on Amazon, navigating the complexities of the online marketplace can be confusing in and of itself without adding inventory management techniques to the mix. In this article we’ll dive into the three most common inventory management strategies that most manufacturers operate by: the pull strategy, the push strategy, and the just in time (JIT) strategy. While supply chain strategies deal with how products are managed on the back-end of the consumer process, supply and demand can greatly impact a brand’s reputation and relationship with consumers, especially when dealing with an online marketplace like Amazon. As a consumer, there’s nothing worse than seeing that ‘ships in three weeks’ disclaimer next to the Buy Now button on a product listing. If a product isn’t in stock or is backordered, consumers won’t wait around for it—they’ll move on. This is why having a clear inventory management strategy in place is so important. It increases a brand’s credibility in the space while positively impacting relationships with consumers.
Now, let’s explore the three main inventory management strategies:
In a pull strategy, a brand is manufacturing inventory based on clear demand from customers.
Essentially, customers are ‘pulling’ product from the brand, creating a two-way street of supply and demand. When customers demand a product, the brand will supply it. Pull strategies are good for brands looking to keep inventory costs low. However, if consumer demand changes rapidly, there can be problems adjusting output levels to keep up, which results in stocking out. The downside of stocking out on Amazon is loss of demand and a drop in organic product ranking.
The push strategy is when a brand is pushing out products based on expected or forecasted demand.
Instead of waiting for a customer to ask for a product such as in the pull model, brands leveraging the push strategy would create as many products as they think customers will demand and then wait for the requests to come in. In the push strategy, it’s easier to keep operating costs low because you’re creating more products at one time, but there is also more risk involved compared to the pull strategy. If the demand for a product doesn’t meet the forecasted levels, a brand could be left with serious excess inventory, driving down the cost of the product overall.
The just in time (JIT) inventory model is when products are created based on a demand schedule that will deliver the final product to a consumer right when they request it.
Elements from both the push and the pull strategy are evidenced in the JIT model as there is a need for both outspoken demand from customers as well as a clear understanding of market forecasting to succeed. The JIT strategy relies on manufacturers having raw materials on hand but not actually creating products until the demand comes in, which can keep overhead costs low but can also create delays in delivering the end products to consumers. Currently, it is not advised to use this strategy for your Amazon business due to inconsistencies with Amazon’s shipping partners and longer than normal warehouse receiving times caused by COVID-19.
When it comes to choosing an effective inventory management strategy for your business, just remember—every use case is different. Take some time to look at how your products are performing on Amazon currently in addition to how your inventory is spread out across warehouses and storage facilities. Many brands decide to leverage a hybrid model of push and pull strategies to keep inventory costs low while still covering immediate customer demands. This hybrid strategy helps keep customers happy while proactively controlling costs.
Inventory management is a critical part of succeeding on the Amazon marketplace. At SupplyKick we keep brands ahead of the curve and in front of inventory management trends with expert knowledge of the Amazon marketplace and with our proprietary reordering system that optimizes inventory levels for our partners.
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