How Can Distributors Model Amazon’s Online Inventory Management?

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The past few years has seen a drastic improvement on delivery times and customer service, mainly thanks to the eCommerce giant Amazon. Delivering within an hour and stocking anything a customer could possibly want is both a dream and a nightmare for retailers or distributors, with the daunting logistical problems challenging more traditional retailers. However, Amazon’s use of online inventory management and chaotic storage can help other companies improve their businesses too.

Why is Amazon so successful?

Amazon effectively delivers country-wide because of their abundance of warehouse locations. For smaller distributors, following some of their organisational techniques can lead to products being shipped earlier, and lower chances of stock outages. While it is impractical for all distributors to run on such a large scale, employing Amazon’s online inventory management tactics enable larger product offerings and faster delivery times through chaotic storage.

Chaotic storage

Chaotic storage is a method of tracking inventory by location rather than product type. For example, if a new shipment arrived at the warehouse, it would be stored in any free space and the location would be recorded through barcode scanning and online inventory management systems. For businesses with quick turnover rates or a wide variety of products, this lessens the time spent organising warehouse shelves. With a full inventory list available on the inventory management software, products can easily be tracked down with a quick search online. Because this system requires scanning and tracking whenever a product is moved, it also means the data is kept up to date, meaning the risk of stock outages is significantly lessened. This storage system enables Amazon to fulfil orders quickly and reduce basic human error and product redundancy.

This system also enables flexibility within the warehouse, meaning storage space isn’t wasted by restrictive location guidelines. Surprisingly, this random system improves accuracy, such as the possibility of sending the wrong size or colour item when it is stored next to the same product. For example, if the t-shirt ordered was next to an unrelated item such as a drink bottle, the employee packing products will be less likely to pick the wrong items.

Utilising online inventory management effectively

When dealing with an online inventory management system in the way Amazon does, it is important to understand turnover rates, supply chain lead times, and promotional strategies to ensure your business is competitive.

Turnover rates require knowledge of how fast your product sells. By understanding this, a forecast can be made of future sales and stock can be ordered to maintain inventory levels, avoiding over or under-stocking. Most online inventory management systems offer a forecasting tool that increases accuracy as data is continuously stored.

Similarly, understanding supply chain delivery times is crucial for maintaining optimal stock levels. While it is important that a business knows how fast they sell products, they must also keep in mind the time it takes for suppliers to produce and deliver their stock. Having a solid understanding of supply chain schedules is also key to delivering on-time to customers.

While sales and free shipping are attractive options for customers, these promotional techniques can backfire and lead to stock outages if not correctly managed. Customers waiting on backorders won’t be pleased, and your company ratings may lower. This can be prevented by setting target numbers of promoted items. By doing this, the promotion will be removed once a certain number of sales is reached, and prices will return to normal to avoid stock outage. It is important to keep in mind the consequences of mass sale levels, which do not necessarily equate to profit in this case.

Inventory management is important because of the relationship it forms with customers. Attracting customers and delivering on time improves satisfaction, resulting in returning customers. If a business is constantly running out of stock, customers will search elsewhere. Therefore, using online inventory management to optimise your business model can result in higher profit and increased business image. Efficient management is also important because it reduces losses related to mismanagement, product damage or redundancy, and unnecessary storage costs. By implementing a successful online inventory management system such as Amazon, distributors can operate at a sustainable rate and increase business success.

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Melanie - Unleashed Software

Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.

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