Amazon FBA Inventory Management Tips with Orion Avidan

and basically what I wanted to hear from you is your opinion and share with my audience also your opinion on how things are going to work in q4 regarding this whole inventory changes they are tightening the grip for Amazon sellers performing the API and the index minimum 500 threshold is going to be pretty hard to achieve for some people that are sourcing from China India and all that so it's kind of like wanted to hear your advice how people should behave in this case in the best possible way for them to be profitable obviously you're the subject matter expert and this topic that affects us all including PPC campaigns that we manage and all the things a lot of changes so that's that's what I wanted to hear so whenever you're ready we can we can get started yeah first of all thank you first of all thank you for having me today I'm really excited to share my knowledge and my expectations and thoughts with you I pie has always been a very baffling parameter that Amazon is brought out it's extremely sacred if you don't really know what is going on in there they they gave out some explanations but they don't explain how this is calculated and looking at the weight ipi reacts to data and I'm sorry about people in my background looking at critics really funny busy looking at the way at the Amazon IP I reacts to changes in the data is not consistent with the explanations Amazon has given Amazon says that IPI is a three month moving average calculation based on specific parameters but then as you slowly slowly improve your inventory status which it's not a fast thing to do other than pulling out inventory in fixing stranded inventory both of those are fast the other things take time and you have a slowly slowly improving inventory and you come in and look at your RPI and it jumped 20 points one week why don't know something happened three months ago you don't even remember what it was you don't know what it was so ipi is an extremely confusing parameter that Amazon set out to try and force sellers to change their behavior basically when Amazon started allowing operating the FBA centers the fulfillment by Amazon logistical centers they were planning one thing but people started doing another thing and those centers became huge storage warehouses people knew how to work the system to get a year's worth of free storage in Amazon at the end of 12 months and it wasn't even that they would do their calculations twice a year at a fixed date so if you brought in inventory in February you had almost 18 months before you started paying excess storage fees and the basic storage fees are very very low so it was actually free storage yeah eventually Amazon figured out what they did and then drastically changed it to something totally different but they're trying to force people to behave in certain ways it's like a king I'm sorry I don't have a better example it's like a king saying okay I want all my subjects to pay me taxes or I will only subjects to be happy tomorrow why because that's what I want so Amazon thinks they're the king and they decide for their sellers it's not true the sellers will always find the best way for them all business operations all business interactions are like water flowing if the water hits a place that is too rocky and it can't flow through it will float around we will always find a workaround we will always find the thing the company didn't think about the thing amazon didn't think about to work around it somebody will do it that will be blackhat at first and they'll figure out how to do it gray head and mentally big white hat there's always always ways to work the system I just don't like it because it's a lot of energy for very very little results why do you want to have a ton of inventory sitting in Amazon for 18 months you don't want that you want to sell your inventory flow its turn it again and again and again and again so basically a doesn't want something that's good for us sellers they want us to move our inventory fast through their logistical centers sell it bring in more of what is selling well hold less of what is selling not so well and basically balance your inventory in the Amazon logistical centers that will allow you to have high ipi scores and not need them because your as your flowing inventory your ipi score doesn't matter anymore even if you have limitations it doesn't matter because all these limitations are there not aggregative they're per the moment so if I don't have a good ipi coming into fourth quarter and I have a limit and let's say my limit is 25 square cubic feet and right now I have 24 cubic fit I can send a full cubic foot to Amazon even though I have a limit as you flow your inventory through the Amazon logistical centers so you have a limit it's less comfortable but you can still send in inventory you can still keep your sales that's shouldn't be a problem at all so having a limit is not the end of the world mm-hmm okay so what you're saying basically is the generally speaking you can keep your business flowing and liquid and profitable as long as you are more diligent about how you manage your inventory in terms of being it divided into smaller pieces rather than just sending a whole batch that will last for the whole quarter that's how you're gonna work moving forward it should that's what Amazon is looking for and it's much healthier for you as a seller as well mm-hmm you don't have control over your inventory when it's an Amazon very little things can get you stuck for weeks and months Amazon decided to rebalance your inventory because you they had too much in Texas and not enough in I don't know Colorado and now half of your inventory has gone to move between their logistical centers and for a week it's not really available you don't know if it's coming or going and they will allow it to sell they will show it as sellable but you can't manage it it's in limbo for a week - I've had a seller whose inventory moved from being regular to being hazardous mm-hmm now the warehouses the Amazon FBA logistical centers for regular and hazardous for his materials were one next to the other it took them two months to make move it's a difficult system mm-hmm the more inventory you control the easier you can work the system so they changed your criteria they said you can no longer be in the regular warehouse you have to be in the hazardous material warehouse okay sending you inventory until they figure out your old inventory if all your inventory is in Amazon you are counting on Amazon to do right by you you have given up all your control mm-hmm has this proven to be a bad practice in your experience during this coronavirus period how cover things doing on the inventory side well we've seen everything and anything happened amazon's logistical centers got clogged up they shifted their attention to material to the things that are more relevant to people during the start of the lockdown so they focused on food and hygiene and if you were selling something people wanted but wasn't in those categories entertainment for kids wasn't a high priority item you're shipping time even if you had inventory in amazon the shipping time for Prime members for regular members went through the roof so your sales were impacted because Amazon didn't live up to its own standard of service on some items and again if you had the ability at the same time to say okay Amazon I'll do fulfillment by merchant for the next three weeks whilst you're working to save the world from Corona hoodoos for you but I need to sell my stuff right II I don't I'm not very familiar with the Amazon logistical back in how can you do that you have to talk with an Amazon expert maybe you have to talk with your the representative in Amazon with your agency to make sure that you know how to set this up you have to make it available for people to make the decision for your clients to make the decision do I want to wait for Amazon to do this distribution process and it's longer now because of Corona or am I going to trust the fulfillment center from the supplier and get it faster in a different way but if if you can combine these things you can always get the best of all worlds is there a less sorry to interrupt is there a way to do this profitably of course I can't give you a cookie cutter because every situation is different if you already have a distribution center doing your and last mile logistics doing your shipments foreign Shopify website for example having them do your Amazon shipments for a period of time is a no-brainer if you now have to do it on your own but you're in lockdown at home it's hard it's complex but it might be profitable the way to check this is to do your numbers and we don't have to do the entire annual profit and loss calculation that's because we're comparing two different options on the same timeframe that have the same parameters so you just compare those two I will make more money here but pay amazon more there or I have to pay shipment what is it that you are adding how many sales do you think you'll get through this what are the differential profits and differential costs so if you're doing SVM and you're not paying Amazon it's processing fee that's on the plus side but you are paying a Threepio subtract that and figure out are you going to make more money or less the most important thing is making more sales profitably of course but if Amazon's Prime shipment going from two days to two weeks is reducing your sales even if you can't get all of them because you're going to charge shipping but you are going to do it in a three or five day response time and you'll get half of those sales back that will probably be profitable interesting do you have any feedback from sellers that currently are negotiating rates with third-party suppliers because we've heard the some of them complained that prices have gone up especially in the USA you know I've had no experience with that recently okay if someone does know please write it in the comment section which sections are in here the feedback that's very interesting as a 3pl or if I was talking to the 3pls yes there is an opportunity right now to squeeze the lemon dry and increase your profits but sellers the seller 3pl relationship is a long-term relationship and in the long-term relationship we don't beat people up when they're down we don't beat our partners when they're down they don't forget easkey this is not going to be forgotten easily if a 3pl is turning on customers or even potential customers and spiking prices up once this crisis is over when people corona will be over i don't know when i'm not a doctor but it will be over it's illness humanity went through horrible illnesses horrible condemned epidemics in the past and we are here and they're not so that's where it's going and when this is over a 3pl supplier that was trying to abuse the situation to his profitability and I'm sorry I must rose for Medicare and hurt his clients and gave unrealistic prices to prospects will find that the competition is still there when the world come back and people will leave him for the competition that will give them better prices if you suck the profitability out of somebody he will always be looking for a way to make a bucks elsewhere and the business will never be a good stable relationship now working together it's a win-win situation always has more to offer both sides than a win-lose situation so yeah you can get a short term win and increase your profitability for a few months as you squeeze a pretty business that is in dire straits and in a problem in mind but in the long run your lifetime value from that prop client your business relations your ability to get referrals everything will be diminished and you will make less money hopefully they can see that do you have some tips for that faster inventory management you mentioned before like what are some of the ways how you can gain better control of your inventory that's spread across both FBA and third party logistics warehouse the first thing that I always recommend after making sure that you really know your situation mm-hmm and and this goes down to doing sq by SKU analysis understanding where do you have X's where do you have shortages what kind of X is what kind of shortage you really have to know where you're standing and everybody knows to some extent intuitively we always know which item is our best seller which item is not doing so well but drill down even deeper what have you done with those items what has worked what hasn't worked what can be learned from Wyatt one item - there are other etc but those are general everyday tips that I give in order to manage this very quick inventory flow first of all if you're doing big shipments from anywhere if you're buying in bulk and you're not selling that fast use an external warehouse don't let Amazon have control over that yes it's an additional expense but Amazon can get very costly very fast whereas with the 3pls this trip cost structure is much more stable and drip-feed Amazon mm-hmm the other thing is Amazon recommendations sometimes are spot-on and sometimes they make no sense at all if you want to use Amazon recommendations see that you're only using the ones that you can explain to yourself oh I've been selling 50 units a week of this SKU and I have 10 units I want to cover the next two weeks so I need 80 to 100 units that makes sense to me but if Amazon says you need 200 more units that doesn't make sense to you so don't trust Amazon blindly you they they say themselves they don't know your seasonality they don't know what you're planning to do with marketing you have to add in your intuition and your viewpoints and the last thing and I think this is the easiest and most important thing is make smaller faster decisions don't look now and say okay q4p four is three months and it's at least two months away from us that's a huge decision do these kind of decision making at least once a week preferably more if you're using an external 3pl and drip-feeding amazon you can make three decisions per week on each SKU check it on Monday figure out if you need to send a little more and don't try to fill in Amazon for three weeks because your drip fitting them send them inventory for four days and another four days and another four days and another four days now remember yes in q3 for Amazon is notoriously slower so you do need to build up a bit more of a buffer mm-hmm in Amazon but you don't have to feed them this kind of big chunk all the time so I'd say start with two weeks of inventory for example or we're not sure what's going to happen let's be on the safe side let's go for four weeks of inventory mm-hm and now I'm coming in to the office on Monday I'm looking at my situation and they have they don't have enough for four weeks but all I need to do is send another three days of inventory to fill out that four weeks and then two days later I'll probably send another two days of inventory of sales basically you're looking at your sales rates ad and of course your intuition and your knowledge about how it's going to increase over the quarter yeah sales season comes in and the holiday season comes in but try to flow the inventory in small frequency shipments and yes Amazon may lag back on some of them but if you have a big enough starting buffer it will balance out that fluctuation mm-hmm and you're always you're always in a good chance of having some of your inventory get into a sellable position is your flowing if you send a big chunk and today was a bad day and a machine broke down and somebody makes a mistake and the entire logistical Center just stopped for three hours and then something happened to get it out two weeks your inventory is nowhere to be found if you send them a little by little every few days you send another and one of those shipments hits of that day and two weeks it's nowhere to be found three days later they get a new shipment maybe that's a good day mm-hmm and how does this affect forecasting in the inventory planning it doesn't those are two separate things you need to have a forecast I always tell people you need to know your forecast is wrong and it's nothing wrong with you and it's nothing wrong with a forecast it's just it's in the future and things can happen so basically our forecasts aren't correct mm-hmm there are ways to make them more robust there are ways to make them somewhat more correct but the best way but the real question isn't what's my forecast right or wrong it's do I have the things I need to sell and if I have them I don't really care what my forecast was and floating your inventory like this flowing your inventory means that if the decision you made today it turns out - two days from now to be wrong you have another decision to make and you can fix it a little bit so if I sent too much I'll send less well maybe I will skip a Sunday if I sent too little the demand is going is fighting far faster than I expected I'll just send more mm-hmm and the last thing that happens when you floats your when you flow your inventory like that is that you have a better standing when you contact Amazon now we all know that Amazon doesn't really negotiate with sellers but they also have a very very keen sense of self interest if they will do something for you that will help them you have a better chance of getting that done so if you have for example an IP I limit and that item is doing amazingly well and the limit is actually limiting you I said I know I said it won't but your flow your flowing your inventory and your doing everything but the man has liked so much that you just need to send more each and every time you have a case to call them up to call your Amazon representative and say listen I can sell more this is going to flow here are the numbers here the proof here's the proof what can be done because you'll make more money that way mm-hmm and I hear some sellers complaining that they don't have a sales that they don't have a rep in Amazon and don't have anyone to talk to how can we overcome this absolutely not everybody can have a sales rep of course we have so many sellers and so many small sellers there are two ways to overcome this one is to become a big seller which will take time and perseverance the other is to join forces with other sellers and you probably can do that the easiest way mm-hmm an agency that represents several sellers can get a representative to talk to them even if they are not officially allotted a representative one of their sellers will have a representative and they can do something through them mm-hmm and when you're looking for an agency that's one of the things to ask them if you are currently not getting this kind of service from Amazon can the agency fill that up for you good advice also I wanted to ask you in case that there's a second wave a lot of people are mentioning that there could be possibly a second wave of coronavirus what do you foresee as some of the main issues with inventory management in the future possible issues well I think the first wave has already created so much impact and even if as humanity we get over this pandemic inventory logistics are going to fill that second wave big time one of the things I saw is that after China came back online and the factories were giving that given the green light to start manufacturing again a lot of them shut down because they just didn't have enough bulk of orders so and a lot of sellers were then saying you know what I don't like this instability I don't like the fact that I can't count on my suppliers and I would rather source closer to home I would rather source with somebody who's more predictable in more communicative and that is going to have a big impact things are simmering down and a lot of people will just go back to the way they were but not everybody and it is going to create a change if we have that second wave globally where the world already almost shuts down again it's a good time actually to start negotiating better cooperation with your suppliers so I'm not looking for better terms just like I said about the 3pls trying to win over their loss will always cause a long-term loss so this is a good time to open communication channels even better and to think about how do you want to work with your suppliers what kind of communication do you really want are you willing to work with the supplier that doesn't communicate well mm-hmm that doesn't understand you that you don't understand them or it this is a good time to invest in your infrastructure in figuring out your financial models your strategy a lot of people come in to Amazon because they heard it's a good way to make money and maybe they're very passionate about their brand or their products but they don't have a business plan and asked them so what's your goal your the goal is to make a lot of money mm-hmm there are a lot of ways to make a lot of money are you going to buy a business and flip it are you going to build a business from scratch are you going to use an existing product or get a new product that you developed each one of these strategies defines a totally different path to the same goal of make a lot of money and how much is a lot of money and how much are you willing to work for that lot of money and what is a lot of money is that six figure seven figure eight figure sales or is that the profit you see in your P&L or is that the money you see in your bank accounts at the end of each month because those are three different numbers and if you do the math you actually find out that some sellers at the verge of the seven-figure sales can only take home less than what they would get if they were flipping burgers at McDonald's mm-hmm because you have to invest in inventory and that does not show up in your P&L as money out of your pocket but you have to pay for it somehow and I'm sorry that's so funny the people behind me and then if you say okay on an average a normal seller that's doing pretty well will make about a 10% profit on the revenue you sell a million your profit and loss will show about a hundred thousand dollars in profits that same average seller also has about the same amount of money in inventory so you have $100,000 in profit but you have already invested $100,000 in inventory so you basically have zero so if you left if you started Amazon because you wanted freedom because he wanted to be free from the nine-to-five well first of all you took a 24/7 so I don't know why that is better but still maybe you just don't want more money then you have to make more money that you would at a nine-to-five not just in the piano which is taxable then but actually your friends again mm-hmm interesting interesting point do you have any other advice for sellers that are now preparing for the cube for this season yeah run motive scenarios now it's not easy and I'm sorry i I'm the only person I know who can do this for you so contact me sorry for the flag but the best way to make decisions is not to sense the win one thing we're not even the mathematical model it does some kind of P&L mm-hmm you actually have to run some kind of simulation that says I'm debating between doing more inventory or less inventory between pushing inventory to Amazon and paying more fees on Amazon I'm paying for a 3pl and you run that through a long time period I usually do a year even though we're fourth quarter is right over the corner your honor right around the corner sometimes a decision that looks perfect for fourth quarter is disastrous for first second third quarters and overall at the end of the year I don't care if you had the best fourth quarter or not I did I care that you have the best profit so if you can have only a not-so-good good ok fourth quarter but then q1 and q2 are going to be stunning and you're going to make a ton of profit out of that wouldn't you rather have at the end of fifty two weeks three hundred thousand dollars net cash instead of just one hundred and fifty two hundred thousand dollars net cash I don't know about other people for me it's not about selling the most I know q4 is cashflow Mon its cash flow quarter it's when you get all this cash but a lot of it comes at a price you discount significantly your profitably tanks Ellison doesn't discount its feet its fees for q4 actually it charges more and for q4 so you are reducing prices Amazon is increasing prices your profitability for q4 not the best maybe selling a bit less in q4 but having better profitability at q1 it's better for you I can't say what we do is we just graph that once one against the other mmm-hmm and make an informed decision and we there are two options one is to say okay whatever we forecast that's going to happen because we're looking at two different options and trying to see which decision makes more sense the other is to actually also add in some variability to say okay I know my forecast isn't going to come to life something else will happen i forecasted this is going to sell well so I have more inventory here and this is going to sell less so I have less inventory here what happens if that's if I cross my signals mm-hmm what decision can I make when do I make it how do I to limit that problem to limit that impact that is a water in for now scenario analysis and there's a lot of money sitting there so there is no unique approach when it comes to inventory management thank you for you just have to look at your own numbers know your numbers and then make an informed decision based on that totally uh totally I just talked to somebody whose season is in the summer he sells summer gardening stuff mm-hmm he's probably not going to sell anything in q4 even if he does discounts even if it does this that and the other probably the best strategy for him is to have nothing in in Amazon for q4 weren't close to nothing whereas somebody else who has Christmas items that haven't sold anything for the past two months as to just lay it on this very very case-specific interesting do you have any message for sellers that are preparing for this q4 something to keep in mind at all times know your numbers no numbers the the temptation of cashflow is phenomenal and I've seen it in e-commerce I've seen it in brick-and-mortar retail when we see those numbers coming in we forget everything we had a perfect day yesterday we sold everything at 70% off and we made $100,000 but at 70% off we have no profit at all we are actually at a loss so yeah we made a ton of cash but we lost money and I understand that need for cash because you've bought a lot of inventory you need to pay for it you need to sell it and pay for it but you need to pay for it profitability you need to be you've done a lot of work and you need to get paid so um I'm gonna revert back to Robert Kawasaki pay yourself first mm-hmm take a salary write your salary as one of your operating expenses then if you have profits after that which are actual cash flow profits you can add to yourself a bonus but you need to pay yourself a salary each month to make sure your business is actually doing what it needs to do if you cannot pay yourself a salary and you cannot form a plan how to fix that in tops twelve months start thinking of an exit strategy the business isn't going well yeah and in this case an exit strategy doesn't even have to be changing the business model just changing the product maybe maybe something is wrong about the product or maybe the product is wrong if the product is selling but you're not making a salary and profits then it's your financial model that might needs to be fixed maybe your pricing too low maybe Amazon isn't for you there's a lot of maybes out there that you can change I'm awesome Orion thank you for being my guest today and thank you for sharing this all all this advice if someone wants to contact you in the upcoming period how can they do that well I'm on facebook I'm on LinkedIn using my name Orion Avedon and I'll send you my email you can share it in the description it's Mauryan at retail - ad with a double D - venture comm it's a bad email address I know no worries we'll put it in we'll put it in the links yeah so it's easy for everyone to to use the effects thank you very much and I was happy to be your host today and always happy to come talk to you it's so much fun [Music]