Get a Handle on Your Amazon Distribution

For 44 percent of respondents to one survey, the “Amazon effect” is having a dramatic impact on more than their logistics, supply chain and transportation operations.

It begins with e-commerce, where consumers are able to find whatever they want, whenever they want, place their order, and then receive what they want within two days, or increasingly within the next day or even the same day.

With more than 120 million products available on the marketplace, and growing, the importance of having a handle on any given brand’s Amazon.com distribution is also expanding. Below, explore best practices for distribution, along with tips for effective inventory management and forecasting.

Establishing Control

First and foremost, brands need to have a distribution audit of their current supplier base, which can include brick-and-mortar, e-commerce pure-players or hybrid companies. Whether brands are going to sell to Amazon as a first party, or use a trusted third-party seller, companies must have control before entering the competitive Amazon market. The perfect type of company to seek out a third-party partner is one with a small portfolio and limited distribution. Lack of control is a huge shortfall — if a brand doesn’t have control of its distribution already, it will experience exponential lack of control on Amazon.

Brands should have a minimum advertised policy (MAP) or a unilateral pricing policy (UPP) in place to ensure retailers are all selling at the same MSRP to protect the brand’s products perceived value. Please note that Amazon will not police a brand's MAP or UPP, or protect a brand from rogue sellers that don't care about price. It's up to retailers to have strict policies and enforce them when pricing rules are broken.

Managing Effectively

Effective inventory management on Amazon requires threading a fine needle. While brands should avoid running out of stock, businesses should also avoid an abundance of overstock, and therefore incurring expensive Amazon monthly and potentially long-term storage fees that erode margin quickly.

Have a varied approach by item, but realize it’s not necessary to have 40 days or 50 days of coverage on every SKU. It’s usually applicable to use the 80-20 rule. A handful of SKUs usually makes up the majority of sales (80 percent), and for those top items, brands should keep some “safety stock,” which can be defined as additional inventory to satisfy greater than 30 days sell-thru of an item. For the bottom 20 percent of products, it’s ideal to run leaner. If stock runs out or is low on these lower-tier items, it will have a negligible impact on business. 

Forecasting Accurately

To forecast Amazon business, continually look at available data. Amazon’s dynamic marketplace can shift quickly, making it critical to evaluate day-to-day metrics, rather than once a month or once a quarter.

When looking at reordering products, there are several factors to take into consideration.

• Evaluate the daily sell-thru of items for the past seven days, 30 days and 60 days. These can differ a surprising amount, especially if there are issues with distribution control. Check if there's consistency or degradation.
• For the same time frames, take a look at buy box win percentages. Rogue sellers, buy box suppression and stranded inventory can negatively impact these percentages.
• On-hand inventory for each item and what the deficit is.
• Break down lead times into segments to quickly identify trends within a supply chain.

Selling on Amazon can be cumbersome. Amazon offers sellers a host of tools, but gives little direction on how to use them and how to be most profitable on the platform. To avoid feeling dissatisfied, sellers should spend time educating themselves and their teams on optimal inventory levels and other logistics factors to successfully navigate Amazon.

Ryan Culver is vice president, operations and logistics for SupplyKick, a strategic marketplace partner, specialized in building brands, growing sales, and moving products on Amazon.