Inventory management with Michael Weir

hi everyone this is Yelena from Amazonia PPC today I have a very special guest with me Mr Michael wear from inventory boss.com I listened to his course on Inventory management and I thought it was super brilliant and I wanted to invite him over to our podcast so that he shares some of his wisdom with us Michael thank you for being my guest and welcome to the show oh it's my pleasure thank you for having me J of course um can you tell us a little bit more about yourself um well I am I've been an Amazon Seller for um since 2013 before that I was in um inventory not Inventory management but I was in the the the Forex I was in internet marketing have been for over 10 years before that I was a a civil litigator and um I was a an aist uh fness attorney for uh a decade or so and um that became a a real grind and I was looking for a way out and um found online marketing and then in 2013 found uh Amazon and jumped in with both feet and haven't looked back since and that's that's how I that's how I got into this business beautiful um a lot of people find themselves in Amazon FBA and never want to look back at all because they were so successful um what were some of the the main challenges you faced as an absent seller well the the thing that that we found which was awesome was that there was so much training um I'm part of ASM too and we all got in and and um you know found the same products a lot of us um but went through and went to M groups and in different seminars and and attended webinars and learned all the the things you need to know to become successful you PPC as you know and and um listing optimization and and SEO and you know later Manny all the cool things you need to build your business and we jumped in with both feet like I said and um we grew pretty quickly and the next challenge that we had was managing you know three different factories two different ports different you know purchasing times and all of a sudden we realize you know it's it's an online marketing business but boy it's got a kind of a retail component to it a logistics component to it that we couldn't find any teaching for we couldn't we couldn't go to a webinar or seminar or take a course on how to how to manage it we we saw all sorts of courses and trainings on how to build our business but nothing taught us how to run it you know profitably as profitably as we can we found that we were bleeding a lot of profits out around the edges uh just because we would you know maybe over order sometimes and tie up our capital and take extra storage fees you know that we're taking out of our profits store we wouldn't order enough or order on time and we'd run out of inventory so you go through you know most of the people on your podcast know you could you could do all the great launch things um you know giveaways coupons um search by all those things the people are doing to to you don't have enough inventory you run out you know your listing advantages you lose your ranking um when you finally do your inventory back in again you know you got to build it back up again you lost your you lost your momentum and so it was a challenge for us to get that figured out so that we would have a just a smooth running Logistics back into our business and so I started looking around for anyone that could teach this to me and I couldn't find it so what I did was I kind of St took a step back and I've got a business degree in finance and I thought man I I got to figure this out and so I started actually I live in a University Town and so I I went to the local University Bookstore found out you can get a college degree in inventory management and Supply Logistics I bought textbooks and then I talked to professors and I I took um I went to seminars that had nothing to do with Amazon and everything to do with you know warehouse management Logistics and I I put together a system and started showing some of my seller friends and we kind of worked on it and did some TR a and before we knew it we we just called it the the system and it it boiled down to a seven-step algorithm where um we run our products through these seven steps and we really streamlined our operations tightened it up very well and now we we just we don't have inventory management problems we just have you know we have a system that that um lays a foundation for our entire business so we can scale knowing down to the unit um what we need to order when we need order it how um we time our orders all these things and that's that's what came out of uh all that all that effort and research beautiful you have tested it and so now what I have is and so we've tested it and then once we had it figured out um you know it was it was first a whole bunch of spreadsheets and U we realized later that spreadsheets alone they can just spring sheets alone are difficult to run a large business with because um what I what I what I say to people is it's like a two-dimensional tool that you're using to solve a three-dimensional puzzle and there's so many Dynamic moving Parts in an Amazon business that what you really need is data and so we went from spreadsheets to where we we built out um a very large database and then we put the the programming the spreadsheets on top of that data and we can run queries and so we took our seven steps and take them off the spreadsheets into a program put that program on top of a database we can draw data from Amazon's mws API and now um You can run 10 products you can run a thousand products and you just you pull the data right out of the database and and the whole system is done um in a program we we now call inventory boss and inventory boss is the thing that uh was the final result in in this project and what what what brought this about was once we started doing well and and I would show this to some of my friends and and they incorporate in their business I got asked to speak at different you know seminars and small masterminds and larger masterminds before I knew it I was all over the world talking about inory management and I realized that even though a seminar or Master could be about a lot of different things um I had sellers bigger businesses than mine coming up to me and say hey this is a paino for us this is a problem that we deal with you know can you help us can you help us and I realize uh this is a this is such a huge issue that no one really talks about because it's not cool ninja awesome stuff to talk about you know it's it's it's you know it's it's complex and it's difficult and um but if you can if you can take the complexity and you can you can boil it down to something you can put in a program on a spreadsheet then it's not complex anymore you just have to understand how to walk a product through seven steps and you're done it's easy it's beautiful that someone has systemized this such a a complex topic into something that you know regular user that user that's not so technical technically Savvy can actually use and Implement in their own systems um you mentioned that you wanted to share some wisdom with us today on this episode and um I was just interested in hearing what it [Music] was well I have um what I can do is I can show the seven steps um let me share my screen real quick quick [Music] sure okay so this is the inventory boss and um it's our seven step system and the first thing that we that we do is we talked about balance because uh Inventory management is about balance and one of the your the people that follow you and and every Amazon Seller knows one of the biggest decisions you can make that will directly impact your bank account is when you click the button and wire tens of thousands of dollars on the other side of the country and other side of the world and that immediately goes out of your bank account and that decision not only trains your bank account at the moment but it determines your cash flow in in in the future you know did I order enough did I order too much and so the decisions you make are super important and it's all about balance what you want to do is you want to you want to balance between being overstocked in a product and and tying up your operating capital and um you know paying excessive storage fees versus running out of stock which will crush your momentum your cash flow and your listing just disappears so it's it's striking that proper balance that allows you to um maintain your cash flow but also preserve your operating Capital so that's what inventory Management's about our seven step uh our seven step system looks like this we have uh something called a reorder Point there's two reasons why you run out of inventory the first one is you blew it okay for whatever reason you didn't an order on time and the second one is you too little based on you know your your Trends and so the reorder Point's important it's a simple math formula in fact I'm going I'm going to teach that today and then the second step is to take your historical data that you get from Seller Central the Amazon API will give you 90 days of data Seller Central if you order to find it will give you two years of sales data which is super important and um you want you want to capture your historical data you want to clean it up I'll show you you know teach you how to do that and build a seasonality index of all your products so you can see in you know in what months mathematically how well they did and so uh the next one is learning how to forecast future demand and I I show three different ways to forecast a future sales and then uh the next step is you know once you figure out when order and you can create a seasonality index and you can forecast you need to add into your forecast manual adjustments for example if you're going to um have a lightning deal or you're going to do a coupon giveaway or you're going to do you any number of different things that you can plan for you make manual adjustments to the months that you are planning those things so you can build out a really accurate forecast not just based on your Trends and seasonality but you what you intend to do as far as promotions and so manual adjustments are important and then the next is um what's called the EQ if anyone um Google you know Inventory management typically they'll come up with something called the economic order quantity in a a search and um what this does is it it helps a seller balance the order size and how many times should I buy a year Bas on the cost of the order and um the storage fees that are going to be implicated by the order so this is a a this is a a formula that we use just to make sure that you're ordering the right amount and then after that we have um Consolidated shipping like I said earlier we had you know different factories different ports and we need to consolidate um you know between the factories that we're shipping to a single port we wanted to consolidate those orders so that we would have the correct container size and you know save our money and maximize you know our container space a horrible thing to do is to to have an order that's just a little bit too big or too big for one container but then you're shipping you know multiple cubic meters of air you know for the same price and so Consolidated shipping a huge part of this and then Warehouse balancing balancing between um what you have in your your Warehouse like your freight forers warehouse um versus what you ship into FBA and that's you know as you know hugely important in Q4 when Amazon you know quadruples the storage fees and so if you can know what your feuture forecast is going to be based on these steps then you'll know month to month in the future how much you should be sending into Amazon and really tighten up your numbers so that you're you're not getting storage fees so those are our seven steps and the first one is uh the reorder point the reorder point like I said tells you um when to order based on uh how much you've got in stock so if you've got uh 5,000 units in your warehouse and maybe 3,000 units in Amazon you know when you make another order based on your sales and so that's one of the first things we're going to teach today um and and that's something every seller needs to know whether you have one product or thousand each product needs to have a reorder point and so um here's how it works there's three steps to reorder point the first one is you need to figure out your lead time and lead time is really simple um I'm GNA assume like 70 days that would be from the minute you pick up the phone you send the WeChat the Skype the email however you communicate with your factory um the minute you send that order to the the minute it becomes available in fbn okay not just arrives at the Port but when it becomes available that's your lead time and so you have to figure out what that is um so it's it's you make the call um they tell you it's gonna take 30 days to to to to build out your work it's going to take maybe three days to get it to the port it's going to sit on the port maybe for two or three days it's going to get on a container ship and it's going to come over in 20 days or 23 days um it's going to go through customs it's going to sit in the warehouse and it's going to be shipped to Amazon you C all that up and in this example I have 70 days so the first thing is lead time and that's what builds out lead time with all those different variables the next one is um you need to figure out what your daily sales are your daily demand um this is what's important about the seasonality of of a product and knowing when you're um what months you're ordering for so if you're making an order in May that's going to arrive in September the that's going to be part of your Q4 business you need to know what your you know daily man's going to be during uh the lead time so so you think what are my daily sales let's say it's 100 a day then you determine um what you want for Safety stock NOW Safety stock right now is one of the biggest issues people are having here we're at the end of February right um because of the Corona virus a lot of people running out of inventory right now and it's directly related to an un no event that is chewing up all of their sales so they have uh a certain amount in storage they got a certain amount in FBA and their sales are going you know just like they they normally would um but their factories are closed and and even if the factories are open they can't ship through different provinces to get to the ports it's a it's a mess um so Safety stock is an issue that Direct impacts whether you're going to run out a business so um a lot of people are going to be paying a lot more attention to Safety stock in the future because the Corona virus um you know they're going to figure it out it's going to run its course but it's going to come back this is they're saying that this is a this is a flu now that's probably G to come back every year so a a pro tip I would I would give you is you're making your money in December make your you make make sure that your your order is going to ship around the end of December first part of January um so that it's on the boat before the Chinese New Year and on its way um Pro tip there and so Safety stock that's what Safety stock is how many days of a buffer can I afford not to run on stop um I would say in orders that you're making um close to the Chinese New Year you don't want 15 days you want 35 50 60 days okay so those are the three steps for the rotor point now we take those three numbers the 70 days 100 units a day 15 days of Safety stock and we build out a simple formula which is the reorder Point equals your lead times your lead time times your daily demand plus your safety stock so let's see what that looks like if our lead time is 70 days our daily demand is 100 days and our safety stock is 15 days that 15 days is actually 15 times 100 so let's let's look at the the MTH it's 70 days times 100 units a day plus 15 days of Safety stock at 100 units a day boils down to 7,000 plus500 is 8,500 units so what this tells you is when my combined stock between my what I have in my warehouse and what I have in FBA when the combined value of number of units hits 8,500 units you need order and if if you're late then you might run out of stock and so what you want to do is if and here's another Pro tip if you're ordering this product around maybe another product um maybe you have a factory that's got um your really big seller and you're making most of your ordering decisions based on a big seller but um you got other units very variations or different products that you're getting from that factory um that might run out before you're ready to make your big order um your safety stock you can make that 25 or 30 or 50 days and and you can really work with a safety stock based on whether it's your big seller with that factory or um you know what time of year you're buying so but but whatever that whatever however this formula works out when you get to 8,500 units you need to make an order and there's ways of setting up alerts um for doing that you can do in sell or Central and uh and there's ways to to get flagged when it's time to make an order for a product so that's the reorder Point first step in our seven step system uh the next the next one is uh data collection and before you can work with numbers um and and what I say big into the cake of your forecast because you're going to take numbers from that you get from Seller Central your historical sales data and you're going to use those numbers to determine your Trends and before you before you do that you want to look at your data and say okay there were times when maybe I ran out of stock or right now um we have a Corona virus it's going to cause people to have a dip in their sales that doesn't mean that that their Trends were were were going down it meant that an outside event um an unexpected event caused a dip and so you want to clean up your data and get rid of the dips and spikes and smooth that data out so you can make a really good forecast when you so first thing you do is when you get your data is look at it make sure there's no outliers if there are and you'll remember what caused them because you know in the business say oh yeah that you know we ran out of business or that was a lightning deal we can't factor that into our Trend that was an event that we created um and you smooth that out and then once you have your data smoothed out then you create what's called a seasonality index the seasonality index oh it's it's awesome it's it's it's math but instead of just saying you know we we typically sell maybe you know 70 you know 75% more in Christmas time you can look and say wow um here are my numbers and when you're when you're forecasting it's all math you have to use math and so a seasonality index not only allows you to look at it if you create a graph with it but you can really see your numbers and you know if I know a lot of people watch shows like Shark Tank and different things and the the people there man one thing they're interested in is knowing your numbers and this is a perfect example of of really understanding your numbers is building a season it index either for a product by itself or a category of product or a catalog of products in a particular note and understanding the seasonality so that when you're making purchases with your factory for an order that's not going to arrive for four months that order is supposed to service um and months in the future you'll know based on um your seasonality index what you need to order so um that's the next step after that we have forecasting forecasting when you're forecasting future demand um what you're really doing a lot of people think they're forecasting now you know eight nine months what you're really doing is trying to figure out that um one value what's what's based on my historical demand what's month s look like what you know what can I expect and so to do that um you start getting into the mathematics now um this is where a lot of people they'll they'll try to figure out in management and I mean this is where I was and um you go online and you look for you how do I forecast my future sales you open a book um and you run something called a simple moving average but when you when you look at it it looks like this and people go huh I haven't seen that in 20 years or I saw that in the seventh grade they see something called the weighted moving average which I mostly use and it looks like this and you know at this point people go okay I'm out of here um and you know exponential smoothing just the name of it sounds scary um and and this is what stops most people most people and this is why no one teaches this stuff because you know people teach to their strengths people people that are really good at SEO teach ranking people are really good at you know optimizing the listening they teach that or or PPC or or all these different things but when you get to this people go gosh I don't what to do um but you know what I told people is you know this looks scary but it isn't you know God gave us mathematics but Bill Gates gave us Excel and so we can take what we can take these scary formulas and we can put them in a spreadsheet and not think about them ever again but we need to know what they do right and so um you can take the simple moving average and it's it's coming up with numbers based on mathematical formulas that you don't ever have to look at again you just have to know that they exist and what they do um so so you learn how to forast future demand based on your historical data and you put the historical data in there then you run the numbers and then it just spits out the answers for you it's not hard once you get past that hump of while there's a lot of math um it's not really that big a deal so um that's forecasting the next one is manual adjustments now like I said manual adjustments are important when you are going to control future events for example if you're going to have coupon giveaways or Lightning Deals or whatever it's going to be um or if you know that certain things are coming that aren't really seasonal for example Prime day is a perfect example of an event that's gonna OCC it's not season it happens every year but it's it's something you have to adjust for because you know it's coming it's an event and if you're G to run a whole bunch of um Lightning Deals or whatever you're G to do you plan for that as a a manual adjustment and so events you know you can adjust them by units say I'm going to sell an extra units so you plug that into your order or um what a lot of people find out is you know what um I'm getting crushed by competition right now even though the trends up to this point are going in one direction we have 20 new sellers selling the same thing 20 sellers that we didn't have last month this is becoming you know difficult and you adjust by percentage you say I think that actually our sales are going to go down a bit or up a bit um based on a percentage value say if you know you we're going to be we're going to be 10% off uh so we're going to do by you know 90% of what we would have done or we're gonna be great you know we just we just got our patent we just got our patent and we're gonna wipe out 30 guys and so we're g our sales are going to go up by 50% so you add a percentage basis and so you need to be able to have the flexibility in your in your forecasting formula to um either adjust by unit or by percent and the next one is called the EQ the EQ if you like I said if anyone Google import management they typically GNA find the eoq pops up and EQ again is about balance what what it what it does a lot of people make the mistake when they're and they're really trying to you know you know figure out the formulas to make their in management decisions what they try to do is use the eoq and I'll explain in a second um as a basis for their order size which is the wrong thing to do what it does is it just balances it helps like I said in the beginning everything's about balance it balances the cost of your order you can think your Freight forwarders Bill versus your your storage fees for that size of order um based on your annual number so it will tell you basically um how many orders to have in a year and the size of the order it's pretty awesome but it's just kind of it's it's something that you use once you make your forecast and you and you decide what your um all your all the things I talked about your your your seasonality and your events and everything like that once you have your order size then you just make sure it's it's in the range that the EQ says is the best most optimal order size and so how this works again it's you know it's math but it's it's not scary math when when you look at like this you think oh my gosh I'm sure I flunked that in eth grade but if you look at it all it's asking for is a couple things one it wants to know what's your annual demand man for this product what's your order cost you maybe it's 4500 bucks to fill a container and put it on the boat and ship it over um what's your annual storage cost per unit you know that could be what's your FBA cost and you have to factor the FBA cost um for January through September October November December um to make sure that you're getting that right and then just plug in the numbers and let it work now again theq looks scary but is what it looks like in in Excel it's just a no-brainer once you have the formulas then all you have to do your data which is easy to figure out and it tells you the number so it's really simple now if you recall the um like I said this is just a a back stop this is something if your order comes in at 9,000 based on you know what you want to do you look at the EQ and go yeah it's in the ballp that's that's a great balance point and then you move on but the EQ is just there to make that not too big or too little based on what's the most optimal size um based on your numbers so um there's only two parts left and these the logistic parts that one is Consolidated shipping um and that's just a concept of making sure that you're you're stuffing that container as full as you can and you're you're saving as you're you're making the best choice to have the best value for your shipping costs and if you're doing a lot of shipping this really adds up so consolidation is a big deal I I I teach how to do that and Warehouse balancing this is a really big deal you know on the left is you know that that dark place where all your your your boxes are um scattered throughout LA's you know wherever um and then on the right's FBA and so the question is at what point and how many do I do I send because in your Warehouse you should be paying a pallet for and so you know if you can stack I don't know 18 you know cartons on a pallet and there's 50 boxes or you know 50 units and a carton you know you've got so many at two at 20 bucks a month or 15 bucks a month based on that pallet size but when you take it over to FBA as you know you're being charged by the cubic foot for the product and so you know it can be 10 times as much storage fees to send something to FBA you really if you know your numbers then it's a simple thing of knowing how much to send in every month and so all this we have on on a program that we built that that tells you based on your forecast you know it just tells you you know this month send that much in this month send this much in and you monitor it you make sure it's right and um Warehouse balancy can save so much money in just storage fees most people yeah you know when they're when they're sourcing products or they're they're thinking about the next thing to buy they'll they'll have a spreadsheet and this the spreadsheet is it's different for everybody um but it basically has the same things how much does it cost how much does it cost to get here um what am I going to spend to send it in FBA um all these things and then they figure out at the end I I call it the Acid Bath I would dunk a product in the acid and it pulled out and I made you know more than 30% that was something to consider and um where a lot of people you know they find themselves a year later into this product go man I thought I'd be making more money um it's typically because their profits are bleeding out around the edges like I said earlier because they're they're they're running out of stock or they're they're not balancing their warehouse right or you know they're ordering too much and so um I'm ending on balance because you know we started on balance balance is everything in Inventory management and when you're balancing um you know the the the the cost of shipping versus cost of storage or or or whatever this is where you find your your profit um through balancing your inventory um because most people can be profitable in the Amazon business but if if they're if they're miss a few steps on the on the the logistics side or the forecasting side the the profits that they expect in a spreadsh sheeet if they're not finding them typically it's it's it's because they're they're losing it in in the the logistics part of their business and so like I said you know you can take a lot of seminars and learn awesome ninja cool stuff on how to get on the first page how to rank how to do all these things but if you don't have an underlying foundation on how to run the business you know you're not going to realize the profits that you want to so that's that's where this came about we've got um we got our program it's called the inventory boss and you can go to inventory boss.com and I I teach this um the whole thing you can learn it in two days I give you 14 days to learn the whole thing youve gone through it um and I go in great detail I take I take my time I take you by the hand I walk you through um the math because you have to understand the math you just don't have to figure it out each time and um I I I teach it like I had my mom sit next to me and um this is how you do it and it's simple um it's bite siiz and once you're done you really get it and then then you have time to use our software and see how it works you can upload your your information all your data to create a database and run the program against it and see how amazing This truly can be it's part of your business and if you ever ever thought about selling your business my gosh if you can say to a perspective buyer that's looking at 20 different businesses hey look I know you're looking at a lot of different things out there but let me tell you something we got systems and I can teach you exactly how our system works that's the foundation of our our our growth we can scale because we know how to run our numbers we can we know our numbers and so if you ever thought of selling your business man you got to get this part nailed and of course everyone wants to be as profitable as they can um but you can become more profitable on the current business that you have the existing book of business you have if you just tighten up your Logistics and your inventory man so that's uh what the inventory boss is the the training the software um and of course if anyone has any questions they can send me an email I'm happy to happy to chat with anybody brilliant Michael thank you for being our guest today and for sharing your wisdom about Inventory management um I know for sure that you know uh most of the sellers who have um scaled their business up to seven eight even nine figures they all have systems in place and inventory management is one of the most overseen uh processes that exist on Amazon FBA as a business and a lot of people can actually use this knowledge to improve their uh systems and make them make make them more money basically so I'm pretty sure that whoever signs up for this 14 uh you have a 14 day free trial uh for anyone uh who wants to learn about Inventory management and then there's this tool that they can apply um and use all this knowledge for their own Advantage so I would definitely warmly warmly recommend it thank you um thank you for being our guest is there anything else you would like to share with our listeners today um no the the the best thing that uh uh any seller regardless of your experience in Amazon whether you have just one product or whether you have a thousand you got to get this figured out and it true if the sooner you do it the better so a lot of people say well I've only got two products awesome bake this into the cake of your business right now because you're going to grow and if you if you'll bake this into the cake of your business at the very beginning it it's going to make all the difference in the world I mean the the the just making a mistake and and blowing it in your reorder point or not ordering enough I've seen so many I've talked to so many people said yeah and I've done it you know I did it in the early days we about run of inventory what do we do we're gonna we're gonna make an order that's going to cost five grand but it's going to cost us another five or six grand to put it on an airplan ship with a DBA and so exactly just to stay in stock people people spend so much money on Express Freight that you don't have to you could you could take that extra freight and double the size of your order and put it on a boat and um and this once you get this baked into the cake your business and it's it's running um those those things just don't happen I mean events do occur the Corona virus is a disaster on a humanitarian level and and also for Amazon sellers which is a humanitarian level if you know if your income relies on your Amazon profits and you're out of inventory yeah it's a big deal and so if you can get this I I keep saying but if you can get this Bak in the cake your business and just part of the foundation of your business it's going to change everything forever the cool thing about this is Inventory management doesn't have a shelf life like a lot of strategies and hacks and ninja tactics you know they have a shelf life of you maybe six months maybe a year um and then Amazon you know they're smarter than we are they they catch on and they wipe it out um this is year in year out this will be with you for the balance of your business and it's it's a skill set that can't be taken away from you once you know it you know it forever and um it's just it it takes your business to the next level you're you're more of a pro um when you you just have your inventory nailed so that's what the inventory boss does it makes makes you the inventory boss um and that's what people want that's what they need for sure couldn't agree more especially because it's a skill set that you can also it's a mindset you can also apply to your e-commerce website if you have it or other platforms as well so um the the predictions are the same you use the numbers whenever they count they come from so basically you can apply the same skill set oh yeah if you've got if you've got a Shopify business or woocommerce wherever you have your selling on other platforms you can take that data and plug it into the program because you're still buying from the same Factory you're just selling your sales come from different platforms and so you have the ability to say well Shopify we sold this many um on you know whatever platform we sold this money and add that to your monthly sales so you can still forecast your the entirety of your business not just your Amazon business if you have other um other platforms you sell on so we we we work that into our into our fir for sure brilliant um Michael thank you for being our guest today and we're looking forward to inviting you over again sometime when some better times come for sellers maybe well it's been my it's been my pleasure thank you so much um talk to you soon okay bye bye byebye