Inventory Management: Why Is It Important?

admin_fortress | Sep 21, 2021

Published in The Marketplace Playbook

You’ve probably heard of the “Amazon Effect” — a customer’s expectation for an Amazon package to arrive immediately once an order is placed — but have you ever wondered how Amazon does it? How is the Amazon Effect achieved? As massive as Amazon is, it has long been the leader in optimizing warehouse operations and inventory management strategies, allowing sellers to keep up with demand more effectively and customers to receive deliveries speedily. So let’s take a deeper look at the inventory management and delivery systems that have allowed Amazon to become one of the most successful and efficient eCommerce marketplaces of today.

Person delivering packages to another person

What Is Inventory Management?

Simply put, inventory management is the entire process from obtaining and storing the inventory of a product, to selling, packaging and shipping the product to a customer once an order is purchased. Since not all product inventory is stored the same way, in order to efficiently manage inventory one must look at everything from sizes, quantities, temperature requirements, and more. All inventory is tracked with great attention to detail in order to avoid inventory issues when sourcing new items, fulfilling orders or refilling stock.

Hundreds of boxes stacked inside a warehouse

Why Is Inventory Management Important?

When inventory is managed poorly, it could lead to a whole variety of problems. Inventory management is how products are stored and tracked in order to meet order demand. If managing inventory is done inefficiently, the likelihood of missing stock, expired inventory, and order issues increases, which are all things you want to avoid as a business. Storing and managing inventory costs businesses money, so proper inventory management is crucial in order to steer away from undesirable high storage fees and potentially decreasing profits.

Proper inventory management is also important because it leads to less logistical errors during order fulfillment, meaning more happy and satisfied customers. Amazon’s speedy and convenient shipping practices are part of the whole Amazon Effect we discussed earlier and why it sees the success it does today. When asked what the top reason was for choosing Amazon as a retailer, Statista reported that 80% of respondents claimed fast and free shipping as their top priority.

Additionally, if inventory is mismanaged, Amazon can penalize a brand’s product listings for running out of stock. If a product listing isn’t generating sales, the listing can go from active to inactive, hurting a brand’s search engine optimization and inhibiting the listing from making any additional sales. When there are no orders being purchased, a product can decrease in search rankings, which could take a while to build back up again organically. By managing your inventory efficiently, you can avoid these pitfalls and put your business in a position to succeed.

Two employees doing inventory management

Amazon Inventory Management Techniques

Currently, Amazon owns and operates over 175 inventory and order fulfillment centers around the globe. It oversees hundreds of millions of square feet of inventory and storage space and employs thousands of employees to help keep its operations running smoothly. Millions of items are stored in each of these inventory warehouse locations before making their way to Amazon customers and there are a couple of ways sellers choose to manage their inventory.

When a business owner uses the Fulfillment by Amazon (FBA) process, it provides them with access to Amazon’s wide distribution network. The advantage of using FBA is that Amazon oversees the entire fulfillment of a business’s orders, from packaging to shipping and delivering your products to your customers. Businesses that often don’t have the capacity to meet the demand of their customers choose this option in order to have the support to meet the one-day, two-day, and in some cases even same-day shipping benefits that Amazon provides. Although you pay a fee for storing your stock with Amazon, it is an efficient way to track your current inventory and forecast your future inventory to keep up with your orders.

Amazon also allows third-party sellers to store their inventory and manage their order fulfillment from their warehouses. A percentage of the Amazon warehouses around the world are operated by business owners themselves. The advantage of this is having full control of your stock, however, it often requires more costs and logistics on the business’s end to meet inventory demands. You can have a world-class product, but if your inventory management system is mediocre, your customers are going to be the ones who notice. This ultimately associates your business with order fulfillment issues and hurts your brand, which affects your profitability.

Girl about to open her package delivery

No matter how you choose to sell your product, Amazon is constantly staying ahead of the online retailer game by prioritizing innovation, operations and the customer experience. It continuously optimizes its inventory warehouse strategies and pushes the envelope with newer and even more convenient delivery methods to meet the ever-evolving needs of the consumer. Amazon was only put to the test further during the Covid-19 pandemic, investing in new tools, services and technologies to do its best to fulfill prompt deliveries when people needed it the most.

As consumers become more expectant of fast and instantaneous delivery, we predict that Amazon will only invest more into high-tech solutions for inventory management and order fulfillment. Without the innovation and enhancement Amazon has made in its inventory management systems, it would not be the success it is today.

If you are a business interested in selling your brand on Amazon or learning about its inventory systems, it could be worth looking into partnering with a full-service agency that knows the ins and outs of the marketplace. At Fortress Brand, we have exclusive partnerships with over 45 health, wellness and beauty brands on Amazon. A full-service retail agency like Fortress Brand can do more than just your Amazon advertising — we create a collaborative partnership covering everything from reseller control, to performance marketing, to logistics.

To learn more information on partnering with an agency, feel free to send us an email at [email protected] to get started.