Navigating Aged Inventory on Amazon: Key Insights for Effective Inventory Management for Sellers

Dealing with unsold stock on Amazon can lead to increased storage fees and decreased profit margins. However, there are straightforward solutions to this issue. By applying effective inventory management techniques, you can address the problem of aged inventory, boost sales, and enhance your profitability on the platform. Let’s explore the concept of aged inventory and the strategies to manage it effectively on Amazon.

Understanding Inventory Aging on Amazon

Inventory aging, previously known as the long-term storage fee, presents significant challenges for businesses on Amazon. These issues occur when items remain in Amazon’s fulfillment centers for more than 180 days. An aged inventory surcharge, assessed on the 15th of each month, is an extra fee charged in addition to the regular monthly storage fees.

Beyond the financial burden, inventory aging can negatively impact key performance metrics like your Inventory Performance Index (IPI) score or a product listing’s sales rank. Essentially, it’s about identifying which products are sitting unsold and accruing storage fees, thus affecting your cash flow. By understanding inventory aging and knowing when to adjust pricing, promote, and restock items, you can improve inventory turnover and boost profits.

How Amazon Inventory Aging Affects Your IPI Score

Inventory aging can significantly impact a seller’s Inventory Performance Index (IPI), which measures various aspects of inventory management, such as maintaining optimal stock levels, quickly addressing listing issues, and ensuring key products are always available. The age of your inventory directly influences your IPI.

There are two main ways inventory aging affects the IPI score:

1. Older inventory is more likely to become obsolete, which leads to increased write-offs.
2. Aged inventory often has higher days of supply, and as a result, the sales velocity slows down.

Both factors result in a lower IPI score.

Amazon sets a minimum IPI score, and falling below this threshold can lead to storage restrictions on your account, requiring you to improve your inventory levels.

To mitigate the effects of inventory aging, you should aim to manage inventory levels to maintain no more than two to three months’ worth of stock in fulfillment centers. However, balancing this can be challenging due to factors like manufacturing lead times, time taken for shipping, and warehouse processing times.

Strategies to Avoid the Aged Inventory Surcharge

To prevent the aged inventory surcharge, proactive management of old stock is crucial. There are several effective strategies to clear out older inventory before the next cleanup date.

1. Selling through Amazon Outlet by offering a minimum discount of 20% to move outdated items quickly. This promotion can help you efficiently clear aged stock.
2. Place a removal or disposal request for your inventory prior to the cleanup deadline. Even if the items are not physically removed by the deadline, they will not incur the aged inventory surcharge.

The cutoff for submitting removal orders is 11:59 p.m. (PT) on the 14th day of each month. This method helps sellers manage aged inventory and avoid additional surcharge fees.

Amazon’s Aged Inventory Surcharge Fees

The fee for aged inventory on Amazon is applied monthly, usually between the 18th and 22nd of each month.

Effective Tactics to Address Inventory Aging on Amazon

1. Assess Inventory Turnover Rates: Evaluating inventory turnover rates helps you understand how quickly your products are selling. Calculate this rate by dividing the cost of goods sold (COGS) by the average inventory value. A high turnover rate indicates fast-moving products, while a low rate suggests items are languishing in storage. Identifying slow-moving stock allows you to take action to mitigate aging issues.
   
2. Carry Out Strategic Inventory Planning: Strategic inventory planning involves adjusting stock levels based on demand forecasts and sales patterns. Consider factors such as seasonality, market trends, and product life cycles when planning inventory. Balancing supply with demand can minimize excess stock and reduce the risk of aging inventory.
   
3. Forecast Demand: Demand forecasting involves estimating future sales volumes for each product based on historical sales data, market trends, and customer feedback. Accurate forecasting helps manage inventory levels effectively, preventing issues related to overstocking or understocking that contribute to inventory aging.
   
4. Utilize Amazon’s Inventory Age and Health Reports: Amazon’s inventory age and health reports provide insights into the status of your stock, highlighting older items and those with slow movement. Regularly reviewing these reports helps you address inventory aging proactively, allowing you to take the necessary actions to optimize inventory management.
   
5. Enhance Product Listings and Visibility: Improving product listings and visibility can boost sales and reduce inventory aging. Focus on optimizing product titles, descriptions, images, and keywords to increase visibility and attract more customers. Additionally, effective marketing strategies, including advertising and promotions, are essential for driving sales and addressing slow-moving inventory.
   
6. Promote Slow-Moving Inventory: Marketing strategies such as discounts, sales offers, and targeted campaigns can stimulate demand and increase sales for slow-moving inventory. Use Amazon’s advertising tools and external marketing channels to promote discounted or clearance items, offering incentives to encourage purchases and reduce inventory aging.

Parting Thoughts

Addressing aged inventory on Amazon is essential for sellers aiming to maintain a competitive edge and boost profitability. Old inventory not only incurs extra fees and penalties but also impacts crucial performance metrics such as sales rank and the Inventory Performance Index (IPI). To thrive in the competitive Amazon marketplace, sellers must manage their inventory with meticulous attention and a proactive strategy.

A leading Amazon Marketing Agency like SalesDuo can be a one-stop solution for managing all aspects of the Amazon and eCommerce business. This frees up retail brands of all sizes to focus on what matters most while we help them set up, manage, and grow their business on multiple marketplaces across various markets. For more information, visit salesduo.com.