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    How to Forecast Inventory for Amazon

    Written by Tristan Williams
    on July 07, 2021

    Amazon Inventory Forecasting 

    As an Amazon seller, it can be great to see that your product is flying off the virtual shelves. And while Amazon wants to see that you have a popular product, they also want to see that you can keep up with demand. Running out of stock has a negative impact on your Amazon listing, your account, and your ability to rank and win the buy box. Because running out of inventory has an impact on your future sales, it’s especially important for Amazon sellers to accurately forecast inventory and sales, which starts with understanding your demand. 

    Understanding Your Demand on Amazon

    Selling on Amazon and forecasting demand is not as straightforward as it is for your DTC site. Predicting demand can get complicated due to the many variables on the platform, including changing rank. For example, over 80% of all sales happen on the first page of search results, so if your product moves from ranking on page 2 to page 1 you will see a drastic change in sales.  

    Seasonal Demand

    Seasonal demand is a key factor when it comes to forecasting, and it can be defined as a certain time series with repetitive or predictable patterns of demand due to recurrent seasonal events. It is also important to keep in mind that your products will not all have the same demand, and some will be more affected by certain variables than others. Not every product in your warehouse sells at the same pace throughout the year. Some products experience highs and lows in their sales due to the changing seasons and months. A straightforward example of a product heavily affected by seasonal demand is sunscreen, which sees much higher sales in sunny summer months. 

    While seasonal demand may seem like an obvious factor, many businesses still struggle to forecast seasonal changes in demand, despite the clear pattern every year. Businesses who fail to forecast correctly for seasonality of demand can experience stockouts during peak seasons if they underestimate demand, losing out on sales and hurting their Amazon seller history. On the other end of the spectrum, overestimating demand can lead to cash flow problems and an unhealthy balance sheet. Businesses with excess stock at the end of a season have to either sell discounted products in end of season sales or take on the burden of inflated carrying costs until demand picks up again.

    Event Generated Demand

    Event demand is defined as demand generated above or below the base sales demand due to an event. For example, retail events such as Prime Day would be considered event demand (not seasonal demand like other holidays such as Christmas) because they don’t take place at the exact same time every calendar year. Seasonal holiday and event inventory can both be very unpredictable. There may be supply chain issues caused by unexpected high demand from customers. Additionally, your suppliers might see an increase in demand from other retailers, making it harder for them to meet your inventory needs. Seasonal fluctuations will exacerbate issues in your inventory management model – if you are spotting issues through the off-peak season, make sure to address them before the peak season begins.

    In addition to event demand, it’s essential to pay attention to ad demand. Keep a close eye on the promotions you’re offering and closely monitor your advertising so that you can either decrease or increase your sell-through depending on your product availability. Also, understand that advertisements not only on Amazon but also off of the platform can have unexpected impacts on demand, so track them carefully. 

    Identifying Market Trends

    As an Amazon seller, you should be frequently reviewing your sales data. You likely will notice the sales of some products are trending up while the sales of others are trending down. The next step is to dig deeper and ask yourself what external factors might lead to the sales of your products rising or falling. A market trend is something that is occurring in the market today and doesn't cycle based on a calendar. A market trend will also show up for your competition. A thorough market trend analysis investigates all aspects of your market and goes beyond just looking at demand fluctuation. A trend can be an assumed future development or an overall direction, and the key to success is detecting trends early on. Macrotrends are often caused by major shifts in society and the global economy. Analyzing these trends gives an overview of the global market and developments, and is essential to keep in mind for the long term and decisions about your overall business strategy. Another type of analysis to consider is a consumer trend analysis, which looks at factors that drive product consumption. The focus is on understanding consumer needs and behavior. For example, you can learn from this type of analysis about how the launch of a specific new product affects the market and if the trend is escalating or evening out. Additionally, a social media-based trend analysis can be useful for business development. It consists of monitoring consumer behavior on social media channels, including using listening tools to stay on top of conversations that surround customer sentiment. This can give you great insight that can allow you to improve your brand. The last type of trend analysis we’ll discuss is a geographical market trend analysis, which inspects variations in trends based on location. The goal is to compare the market in different geographical areas and understand how they develop in each. Finally watch out for shifts in market demand caused by triggers such as new technology, economic factors (such as natural disasters and pandemics), political changes (including new regulations or shifting government priorities), and social developments (which can include social issues and campaigns such as the #MeToo movement).

    Using Technology for Inventory Forecasting

    At Envision Horizons, we use our proprietary software, myHorizons, to help us forecast inventory for clients. Our Inventory Forecasting Tool shows forecasted inventory based on the average trend for each ASIN over the last 60 days. Estimated growth rates are capped at 25% per month and floored at -15% per month. For ASINs that have experienced major stock interruptions, we do not recommend relying solely on this type of forecast.

    Our account managers use the data provided by the Inventory Forecasting Tool and export it so they can factor in variables such as promotions, past performance, seasonality, current trends, etc. Additionally, our account managers will look at the sales summary page or sales by ASIN page to view the time series of products and build in decline or growth rates. Combining time-series data with additional variables can be a very effective way to build forecasts. For a more in-depth forecast, include any variables that influenced the sales for that period, such as a lost buy box or price changes, promotional events on or off of Amazon, advertising metrics, etc. Finally, note of any inventory situations for particular SKUs that were caused by slow sales or large unit swings. 

    Amazon also provides forecasting tools in both Seller and Vendor Central. The tools work slightly differently but are both based on the same consumer data. The tools can be helpful for sellers who want to know how many units are needed to meet consumer demand for the next few days/weeks, but aren’t very useful for long-term planning. Because the tools are based on consumer demand, they struggle to account for things like seasonal goods, large promotional periods, or advertising on and off Amazon.

    Tips on Forecasting Demand for Brands New to Amazon

    It can be difficult to estimate demand for a brand or product new to Amazon. At Envision Horizons, we like to start by looking at brand analytics and Jungle Scout to see what the brand searches are and how the volume of searches indicates demand for the brand. We also may look at comparable products on Amazon, and use a tool such as Viral Launch to see estimated monthly sales. Finally, if the brand already has a DTC site, looking at demand there can be a great way to predict demand on Amazon. Usually, best sellers on DTC sites will also be best sellers on Amazon (if listed and managed well)

    Know Your Amazon Inventory Limits

    In order to properly manage your inventory, FBA sellers need to be aware of Amazon's inventory limits. Amazon explains that storage limits are based on volume (measured in cubic feet) and are set for each storage type. Seller's current and potential storage limits and usage are shown when you expand Storage Volume, which you can view in your Inventory Performance dashboard and Shipping Queue.

    Storage limits are calculated using several factors including:

    • Your sales volume (including your sales' seasonality periods)
    • Your historical IPI scores
    • Available fulfillment center capacity

    Professional Sellers with consistently higher IPI scores will receive higher storage limits, adjusted for sales volume and available capacity. When setting limits for an upcoming quarter, Amazon considers both your recent sales volume and seasonal volume from the last year.

    Exceeding Storage Limit

    As mentioned above, you can check the status of your inventory limit at any time by viewing the Storage volume on the Inventory Performance dashboard or in the Shipping Queue. You'll see an alert icon if you're over your limit. If you're over your limit, you can calculate your current overage for that storage type by subtracting your current usage from your current storage limit. Amazon will also send you weekly alerts if you're over your limit for each storage type. Storage overage fees will be charged if your existing inventory exceeds your storage limit for any storage type on any day within a given month. 

    Under the FBA inventory storage limits policy, you will not be able to create a new shipment to Amazon for a storage type until your inventory level drops below your limit for that storage type. If you exceed your storage limit by sending extra inventory, the extra inventory may be refused at the fulfillment center. For more information, see shipping and routing requirements.

    At this time, Amazon does not offer the ability to purchase additional storage space. Amazon continually assesses its network capacity to find opportunities to increase storage limits. You can see your most up-to-date storage limits by expanding Storage Volume at the bottom of the Inventory performance dashboard. Selling Partner Support does not provide further guidance on the subject.

    Learn More About myHorizons

    Our technology, myHorizons, is a real-time marketing analytics and AI-powered advertising optimization platform. Built by our software developers, myHorizons enables our team and our clients to analyze profitability, optimize advertising, monitor consumer behavior, discover new opportunities, and make business decisions with confidence. Learn more about the many features and tools included in myHorizons on our technology page.

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    Sources:

    https://sellercentral.amazon.com/gp/help/external/XLRKWL8L5BMSHWB

    https://www.similarweb.com/corp/blog/research/market-research/market-trend-analysis/