Amazon inventory management is the process of tracking stock, forecasting customer demand, and fulfilling orders. The objective is simple: have the right amount of product available when customers want to buy, without overspending on stock that doesn't sell.
Getting this balance right is what separates sellers who struggle from those who build a profitable business.
Cost of Poor Inventory Management
Poor inventory control directly hurts your profitability. It's a two-sided problem where having too much stock and not enough can quietly damage an otherwise healthy Amazon business. Many sellers don't realize the full financial impact until their profit margins disappear.
1. Overstocking and Cash Flow Issues
When you have a warehouse full of products that aren't selling, your capital is frozen. That’s cash you can't use to invest in new products or fund advertising campaigns. It creates an immediate cash flow problem.
The costs don't stop there. You're also losing money from:
Long-Term Storage Fees: Amazon penalizes you for inventory that doesn't move. After 181 days, aged inventory surcharges begin, and they will reduce your profits every month.
Removal and Disposal Fees: If a product isn't selling, you have to pay Amazon more to either ship it back to you or dispose of it.
A Declining IPI Score: Excess inventory is one of the biggest factors that lowers your Inventory Performance Index (IPI) score. A low score can lead to Amazon placing storage limits on your account, which restricts your ability to grow.
2. Understocking and Lost Momentum
Running out of stock might seem less costly than overstocking, but the long-term damage is often worse. When you stock out, you lose immediate sales. Just as important, you give the Amazon Buy Box, and your customers, directly to a competitor.
The biggest issue, however, is the loss of momentum. A stockout stops your sales velocity, causing your Best Sellers Rank (BSR) to drop. Regaining that rank is a slow and expensive process.
Poor inventory management can cost the average Amazon seller $50,000 a year in lost sales and excessive fees. This number shows how serious the issue is. Most sellers get caught in a cycle of stocking out of popular items and overstocking on others because their demand forecasting is inaccurate. If you're dealing with this, our guide on how to manage Amazon fees for sellers can help you understand your numbers better.
To manage these costs, many sellers use specialized tools. If you're selling on multiple platforms, reading a comprehensive guide to Multi-Channel Inventory Management Software can be very helpful.
How to Improve Your IPI Score
Your Inventory Performance Index (IPI) score is Amazon's evaluation of how you manage FBA inventory. A low score is a direct threat to your growth, leading to storage limits and higher fees. If you want to scale your business, you must maintain a good score.
Amazon evaluates a few key factors: how well you keep popular products in stock, whether you're holding onto unsold inventory, and if you're fixing listing problems quickly. A score above 400 is what you need to avoid storage restrictions.
You can find your score in Seller Central.
This dashboard breaks down your performance into four main areas, showing you exactly where you need to improve.
1. Get Rid of Your Excess Inventory
Excess inventory is the main reason for a low IPI score. This includes any FBA stock that has over 90 days of supply. This inventory not only ties up your cash and leads to storage fees, but it also signals to Amazon that you're using their warehouse space inefficiently.
Make it a weekly routine to check the "Manage Excess Inventory" page in Seller Central. Amazon provides recommendations on what to do:
Run a sale: A temporary price drop can be enough to start selling units.
Create an Outlet deal: This is a good option for products that are close to incurring long-term storage fees.
Advertise the ASIN: A targeted PPC campaign can give a slow-moving product the visibility it needs.
Submit a removal order: Sometimes the best financial decision is to cut your losses, remove the inventory, and free up your capital and storage space.
2. Boost Your Sell-Through Rate
Your FBA sell-through rate is a rolling 90-day metric that compares your units sold to your average inventory level during that period. A high sell-through rate shows Amazon that you stock products people want to buy.
A "good" rate is generally considered anything above 2.0. If your rate is lower, it's a clear sign you have too much stock for the current demand. This metric is closely related to managing excess inventory; clear out old stock, and your sell-through rate will naturally improve.
3. Fix Stranded Inventory Immediately
Stranded inventory is completely dead weight. These are products in a fulfillment center that can't be sold because of a listing problem. You're paying storage fees for items that have no chance of being purchased.
The causes are usually simple, like pricing errors, a deleted listing, or a new requirement for brand approval. Check your "Fix Stranded Inventory" page daily. Most issues can be fixed in a few clicks, such as relisting an item or updating information. If you're creating a new shipment, our guide on how to send products to Amazon can help you avoid common mistakes that cause inventory to become stranded.
4. Keep Your Winners in Stock
While overstocking is a major problem, stocking out of your bestsellers is just as bad for your IPI score. Amazon's in-stock rate metric tracks how often your replenishable FBA ASINs were available over the last 30 days.
Amazon gives more weight to items that sell faster, so keeping your top sellers in stock is essential. A stockout not only hurts your IPI but also kills your sales momentum, lowers your Best Sellers Rank (BSR), and gives your competitors an opportunity to take your customers. Set up reorder alerts or use an inventory management tool to stay ahead of demand.
Forecasting Demand and Setting Reorder Points
Predicting what your customers will buy is the core of Amazon inventory management. If you get it wrong, you face the common seller problem: a warehouse full of unsold products and empty shelves where your bestsellers should be.
Good forecasting is not about guessing. It's about using the data you already have to make smarter decisions.
This process is about moving from reacting to problems to proactively preventing them. The goal is to set a solid reorder point for every product. This is the specific inventory level that signals it's time to order more, ensuring new stock arrives just when you need it.
1. Figure Out Your Average Daily Sales
First, you need to analyze your historical sales data from Seller Central's business reports. To get a reliable number, look at the last 30, 60, or 90 days. Be careful to account for any unusual sales spikes from promotions or holidays that might affect your average.
For a product with consistent sales, a 90-day window provides a solid baseline. If your sales fluctuate, a 30-day window will likely give a more accurate picture of current demand.
The Simple Formula: Total Sales in Period / Number of Days in Period = Average Daily Sales
If you sold 450 units over the last 30 days, your average daily sales velocity is 15 units. This number is the foundation of your reordering plan. For more detailed forecasts, tools like Amazon Brand Analytics can reveal valuable customer behavior trends.
2. Nail Down Your Total Lead Time
Your lead time is more than just shipping time. It's the total number of days from sending a purchase order to your supplier until the inventory is checked in and available for sale at an Amazon FBA warehouse.
You have to account for every step:
Supplier Production Time: How long it takes to make your products (e.g., 20 days).
Shipping Time: The transit time from the factory to the FBA warehouse (e.g., 30 days).
FBA Check-In Time: How long Amazon takes to receive and process your shipment. This can be as short as 3 days or take over 2 weeks during busy periods like Q4 (e.g., 7 days).
In this example, your total lead time is 57 days.
3. Set Your Reorder Point
Now that you have the two key pieces of information, you can calculate your reorder point. The formula also includes a buffer called safety stock, which protects you against unexpected shipping delays or a sudden increase in sales. A good starting point for safety stock is 14 days' worth of inventory.
Here’s the formula:
(Average Daily Sales x Total Lead Time) + Safety Stock = Reorder Point
Using our example numbers:
(15 units/day x 57 days) + (15 units/day x 14 days) = 855 + 210 = 1,065 units
This means that as soon as your inventory level for this product hits 1,065 units, you need to place a new order. It's a systematic, data-driven way to restock.
4. Comparing Forecasting Methods
When it comes to forecasting, you can either use spreadsheets or specialized software. Both methods can work, but they are suited for different business sizes.
| Feature | Manual Forecasting (Spreadsheets) | Automated Software |
|---|---|---|
| Cost | Free (besides your time) | Monthly subscription fee |
| Setup Time | High; requires building and maintaining formulas | Low; integrates with Seller Central quickly |
| Accuracy | Prone to human error; can be skewed by old data | High; uses real-time data and advanced algorithms |
| Scalability | Difficult to manage with more than a few SKUs | Easily handles thousands of SKUs |
| Time Investment | Very time-consuming; requires constant manual updates | Minimal; runs automatically and sends alerts |
| Best For | New sellers with a small product catalog (1-10 SKUs) | Growing brands or sellers with many SKUs |
Spreadsheets are a great place to start, but as your catalog grows, managing them becomes a major time commitment. That's when automated tools become a more practical option.
Choosing Your Fulfillment Model
How you get products to customers is a core part of your Amazon inventory strategy. The choice between Fulfillment by Amazon (FBA), Fulfillment by Merchant (FBM), or a hybrid approach determines where your stock is stored, who handles returns, and how quickly you can adapt to changes in demand.
Aligning your inventory operations with your business goals is key, whether you aim for rapid growth or want to maintain control over your brand.
1. Fulfillment by Amazon (FBA)
With FBA, you hand over logistics to Amazon. You send your products to their fulfillment centers, and they handle storage, picking, packing, and shipping. The biggest advantage is the Prime badge, which can significantly increase conversion rates.
However, this convenience comes with responsibilities. Your job becomes managing inventory within Amazon's system. This means:
Focusing on Your IPI Score: You must monitor your Inventory Performance Index. Letting slow-moving products accumulate or stocking out of bestsellers will lower your score and could lead to storage limits.
Avoiding Storage Fees: You'll pay monthly storage fees, but the aged inventory surcharge is the real cost. Sharp forecasting is your best defense against these fees.
Mastering Inbound Shipments: FBA has specific rules for preparing and sending products to their warehouses. Incorrect labeling or packing can cause delays or rejection of your shipment.
By 2025, Amazon was operating around 1,200 logistics facilities globally, with over 750,000 warehouse robots. FBA allows you to use this system, but you must follow its rules. You can find more details about Amazon's automated fulfillment on extensiv.com.
2. Fulfillment by Merchant (FBM)
With FBM, you are in control. You store your own inventory and are responsible for shipping every order. This model gives you complete control over your stock, packaging, and customer experience.
The main benefits are flexibility and cost control. You don't have to worry about FBA storage fees or your IPI score. FBM is a good choice for certain products:
Large, Heavy, or Bulky Items: Products that would incur high FBA fees can be more profitable when fulfilled by you.
Slow-Moving or Niche Products: You can offer a wider range of items without being penalized for a low sell-through rate.
Multi-Channel Operations: If you also sell on Shopify or your own website, managing all your inventory from one location is simpler.
The downside is that you are responsible for all logistics. You need an efficient system for picking, packing, and shipping orders on time to maintain good seller metrics.
3. The Hybrid Approach: A Smart Mix
For many growing brands, the best solution is a combination of FBA and FBM. A hybrid model provides a strategic advantage and a safety net.
A common hybrid strategy is using FBA for your fast-moving bestsellers to get the Prime badge. At the same time, you maintain an FBM offer for the same product as a backup. If your FBA inventory runs out, your FBM listing automatically becomes active. This prevents a stockout, protects your sales rank, and keeps revenue coming in.
To learn more, check out our guide on Amazon FBA vs FBM for a detailed comparison. This approach lets you benefit from the strengths of both fulfillment methods.
Smart Ways to Handle Excess Inventory
No matter how accurate your forecasting is, every seller eventually deals with excess inventory. It ties up your cash, lowers your IPI score, and gets closer to incurring long-term storage fees. A clear plan for dealing with overstock is essential for protecting your profits.
The key is to act quickly. Once your inventory has been sitting for 90 days, Amazon flags it as "excess," and your IPI score starts to drop. Don't let it become a bigger problem.
1. On-Amazon Liquidation Tactics
Before you remove stock from FBA, try to sell it on Amazon. Your first step should be to use the tools Amazon provides to increase sales velocity.
Try these options:
Create Outlet Deals: For products close to incurring aged inventory fees, Outlet deals are a great tool. They feature your product in a dedicated section on Amazon, attracting buyers looking for a deal.
Run Aggressive Coupons: A simple coupon (like 20% off) can be enough to attract a shopper's attention and encourage a purchase.
Launch Focused PPC Campaigns: Create a dedicated ad campaign for your overstocked ASINs. Use aggressive bids to increase visibility and drive traffic to the listing. The goal is recovery, not profit.
2. Off-Amazon Disposal Strategies
If on-Amazon tactics don't work, it's time to consider off-platform solutions. The main goal is to avoid Amazon's removal or disposal fees and recover some of your initial investment.
Expanding where you sell can be a solution. If you manage inventory across different platforms, a solid omnichannel ecommerce strategy can provide an outlet for this excess stock.
Pro Tip: Before creating a removal order, calculate your breakeven point. Add up the product cost, inbound shipping, and FBA removal fees. This total is the minimum you need to recover.
Consider these off-Amazon options:
Liquidation Marketplaces: Websites like B-Stock or Boxed are designed for this. You can sell your excess inventory in bulk to other businesses. You won't get the full retail price, but it's a way to turn dead stock back into cash.
Donations for Tax Write-Offs: Donating your inventory to a registered charity can be a smart financial move. You won't get cash, but you can receive a tax deduction for the value of the goods.
Bundle with Best-Sellers: If the product still has some value, create a removal order and use the units as a bonus or part of a bundle with more popular products on other channels.
Amazon Inventory Management Techniques
Strong inventory management ensures you maintain the right stock levels, avoid unnecessary storage costs and keep your Amazon listings active without interruptions. The techniques below help you plan restocks, control spending and manage products more efficiently.
1. Just-in-Time (JIT) Inventory
JIT focuses on keeping only the amount of inventory you actually need. You order stock closer to the time you expect to sell it, which reduces storage costs and lowers the risk of products sitting too long. This approach works best when your suppliers can deliver quickly and consistently.
2. ABC Analysis
ABC analysis sorts your products based on how much revenue they generate. 'A' items bring in the highest sales and require close attention and frequent restocking. 'B' items create steady but moderate sales and need regular management. 'C' items produce the lowest revenue and should be stocked in small quantities so you do not invest too much money in slow performers.
3. Economic Order Quantity (EOQ)
EOQ helps you figure out the ideal number of units to order at one time so you are not ordering too much or too little. Ordering too much leads to high storage costs, while ordering too often increases operational expenses. EOQ finds the balanced number that keeps your costs as low as possible. It is most useful when a product has stable and predictable demand.
4. Minimum Order Quantity (MOQ)
MOQ is the smallest amount a supplier requires you to purchase in each order. It determines how much money you need upfront and how much inventory you will be holding. If the MOQ is high, you must be sure the product sells well enough to justify carrying that quantity.
5. FIFO (First In, First Out)
FIFO means the inventory that arrives first should also be sold first. This prevents older units from sitting in storage too long, which can lead to long term storage fees or expired products. FIFO is especially important for anything with a shelf life, but it also helps keep product batches consistent so customers always receive fresh, up to date inventory.
Common Inventory Questions Answered
Even with good systems in place, some inventory questions often come up. Getting clear answers can help you make better decisions. Here are some of the most common ones.
1. How Often Should I Check My Inventory Levels?
For your fast-moving bestsellers, you should check your inventory daily. A sudden sales spike can wipe out a month's worth of stock in hours. For slower-moving items, a weekly check is usually sufficient.
The key is to look beyond the total number of units. Your daily check should focus on sales velocity and your remaining days of supply. This metric tells you how much time you have before you stock out, which is more useful than a simple unit count. Set a recurring calendar reminder to make this a consistent habit.
2. What Is a Good Sell-Through Rate on Amazon?
While this can vary by category, Amazon provides a clear benchmark. A sell-through rate above 2.0 is considered "good." This means you’ve sold twice the amount of your average inventory on hand over the last 90 days.
A rate between 1.0 and 2.0 is fair, but anything below 1.0 is a warning sign. It indicates to Amazon that you have too much stock for the demand, which will lower your IPI score. You can see the sell-through rate for each of your products in the FBA Inventory dashboard.
Pro Tip: Your sell-through rate is a leading indicator of inventory health. If it starts to dip, it's time to increase your advertising or run a promotion to get ahead of the problem.
3. What Is the Best Way to Account for Supplier Lead Times?
The biggest mistake sellers make is being too optimistic. To calculate your lead time accurately, you must map out every step and add a buffer for potential delays.
Your total lead time is the sum of:
Production Time: The number of days your supplier needs to make your order.
Shipping Time: The transit time from the factory to the FBA warehouse.
Amazon Check-In Time: The time it takes Amazon's fulfillment centers to receive and process your shipment, which can increase from 3 days to over two weeks during Q4.
Always add a safety stock buffer of at least 14 days, though 30 days is better. This protects you against shipping delays or a sudden increase in sales. If your supplier consistently misses delivery dates, you should either adjust your reorder point to reflect their actual performance or find a more reliable partner.
4. Can I Use Both FBA and FBM for the Same Product?
Yes, you can, and it's a smart strategy to protect your sales and ranking. It's simple to set up by creating a second offer for the same ASIN with a different SKU.
This creates a safety net. If your FBA inventory is stranded, lost, or stocks out, your FBM offer can automatically become active. This keeps your listing active, so you don't lose sales momentum or your Best Sellers Rank. It's also a good way to sell products that are too large or heavy to be profitable with FBA.
