Managing Inventory and Inspections

Amazon restock limitations may have impacted you this year, or maybe you’re evaluating whether it’s a good time for you to start your eCommerce business on Amazon. Either way, there is some helpful information around this subject so keep reading.

A Lesson for a Budding Entrepreneur

McClain Warren of Movely recounts: When my friends and I were around 10-years-old, we used to frequent a neighborhood golf course, searching for stray golf balls in the woods or in sandpits. Once we had collected enough, we would set up a makeshift stand (not unsimiliar to a lemonade stand) and resell those lost golf balls for a decent profit. Or, at least what our prepubescent minds deemed decent income. It was a good business… until we got in trouble with management and threatened to be fined if we ever tried it again.

Parallels could be drawn between my experience as a “golf ball pedaling” entrepreneur and life as an Amazon seller. Perhaps you’ve experienced this yourself: Your Amazon business is going along great when suddenly – seemingly out of nowhere – BAM! The Amazon gods drop a hammer on your business without any prior notice, and that hammer is known as Amazon restock limitations.

Earlier this year, this is exactly what Amazon did to virtually all sellers when they implemented their Amazon FBA restock limits in mid-April and merchants everywhere have since been scrambling to tailor their supply chain and inventory to meet these new restrictions.

What Are The New Amazon Restock Limitations?

Last year, as many of you know, Amazon imposed a 200 max storage limit directly correlated with international supply-chain issues as a result of COVID.  This year in April 2021, Amazon announced Account Level Restock limits (not to be confused with inventory limits). Most sellers have no real concept of what all that entails; they just know it has created a heavy shift in how they have to manage their supply chain. 

In the article Demystifying Restock Limits, James McConnell does an incredible job at helping Amazon sellers understand what to expect regarding the updated guidelines – including misconceptions as to how Amazon restock limitations are calculated. Really, this all boils down to one, important bottom line: Amazon is in the business of selling, not storage. They make money when you sell your products, not keeping them in their warehouses and collecting dismal warehouse fees.

The main takeaway about Amazon restock limitations is that the key metric in Amazon’s Restock Algorithm is Turnover (a.k.a. Days of Cover or Days of Stock.) In order to increase your restock limits, it’s not as simple as just selling more products – your sell-through ratio has to increase which is calculated when an item is added to a shipment NOT when it hits FBA.

How do you navigate these new restraints? You need to increase your turnover by sending in smaller quantities of your product more frequently and shorten the time between adding an item to a shipment and having it checked in at your Amazon facility. Try to manage your inventory so that your total quantity inbound and at Amazon is under 30 days worth of stock or as close to that as possible. Of course, this is much easier said than done with the compounded manufacturing and shipping delays that are occurring – particularly in places like India where COVID is rampant.

This may not be a huge deal for many sellers right now, but this does perpetuate high anxiety for most when planning for Q4. So, what are some measures you as a seller can take right now to try and transition into a smooth final quarter? Good question. There are a few things you can control.

FBA Restocking Inventory

Increase your sell-through ratio

One of the obvious answers for many sellers toward back-pedaling Amazon restock limitations was to cut off multi-channel fulfillment (MCF). This means, if you were having FBA fulfill your other stores on, say, Shopify or Etsy, you might have chosen to use merchant fulfilled warehouses instead so as not to go above your inventory limit.

However,  according to Chelsea Cohen from SoStoked, it would seem as though Amazon is back-pedaling themselves, offering a significant bump in inventory storage if you use MCF. In fact, here is a snippet of a letter one of Chelsea’s clients received from Amazon:

FBA Restock Limits

At first, this sounds counterproductive to Amazon’s original intent (which was to decrease the number of units sitting in their warehouses). However, there are a few things to consider.

Firstly, Amazon has made it very clear that they incorporate sales velocity from outside sales when calculating the success rate of your Amazon business. This means your Amazon sell-through ratio would decrease by not accounting for those others platforms.

Secondly, with so many people pulling their units from MCF due to Amazon restock limitations, Amazon essentially lost their finger on the pulse of what sales were being made where. It can be assumed – not proven – that Amazon’s attempt to reconcile these numbers by increasing restock limits it essentially a “data grab” as Chelsea points out.

Another way to improve slow turn-around with your supply chain is to really hone in on what’s happening with your inspections.

How Do Poor Inspections Correlate with Amazon Restock Limitations and Q4?

While your Amazon restock limitations may increase by utilizing MCF, that doesn’t mean you still won’t have issues with your supply chain and storage – particularly with Covid, shipping delays, and Q4 just around the corner. You’ll want to do EVERYTHING YOU CAN to avoid any potential bumps in the road that might impede business. This is why it is crucial to have a properly run inspection process.

It’s easy to fall into the trap of trusting your manufacturer to supplement their production with inspections, but it’s definitely not recommended. Yes, your manufacturer should be doing inspections anyway, but at the end of the day, they are looking out for their own best interests – not yours. This means many products can sneak past that don’t meet you or your customers’ standards.

Hiring a third-party inspection company is like hiring someone to be the eyes and ears for you. Not only is it vital to have your inspector perform a thorough pre-shipment inspection, but it’s highly suggested to do a mid-production inspection as well. Why? Well first…

What is a Mid-production Inspection?

A mid-production inspection is exactly what it sounds like: It’s when an inspection happens during the production process. For example, an inspector comes in at 5%, 20%, and 50% of the production completion and randomly tests a sample size. It’s much less expensive to go in and correct faulty products at this stage than if the entire order is completed. This is particularly recommended for first orders, high-risk orders, every order for high-priced luxury items, and any company that has a lower risk tolerance.

Why Perform a Mid-production Inspection?

In short, mid-production inspections cut down on turnover time if there are issues with quality control during assembly. Yes, it adds time to the actual inspection process, but that’s peanuts when compared to how long it will take to correct an issue upon completion.

For example, if you decide to do mid-production inspections, your inspector will come in at different times during the developmental process and check that there aren’t any issues. This is especially important at the critical Amazon FBA point, which is when your product has surpassed the point where any defects can be easily corrected. If you only have your inspector check the quality of your products after the critical point (i.e. pre-shipment), then if there are issues with quality, your manufacturer will very likely have to start the production process all over again.

Even worse, if inspections are done only during the pre-shipment phase and the inspector clears the cargo for shipment, then any defects that weren’t caught will now be in the hands of your customers. This leads to bad reviews, high return rates, and even more of a headache trying to get your inventory under control while also juggling the issue with FBA restock limits.

Mid-production Inspection

Choosing the Right Sample Size

When controlling the quality of a batch of products, it is not practical to inspect 100% of the shipment. That would be a waste of money and time (save for certain instances in which that particular batch is very small). Many inspection companies won’t be transparent about this, as more units tested equals more money in their pocket. This is where Movley takes a very different approach. When we tell you it’s not necessary to test out a certain amount – we mean it.

The truth is, rarely does a 100% check yield that much more information than inspecting a statistically representative sample. The question then becomes: How many products within your batch make for a statistically valuable sample size?

The acceptable quality level (also known as AQL) is a measurement applied to products and defined in ISO 2859-1 as the “quality level that is the worst tolerable.” The AQL tells you how many defective components are considered acceptable during random sampling quality inspections and is usually expressed as a ratio of the number of defects compared to the total quantity of products.

There are three levels for this (I, II, and III) with I being the smallest sample size and III being the largest. Obviously, the fewer samples you test, the less time it takes, and the more money you will theoretically save. On the other hand, a low sample size provides more room for error which might cost you a lot in the long term. Thus, it becomes a matter of your risk tolerance or threshold.

Bottom Line

It’s incredibly important that you do everything you can to safeguard your inventory and implement the processes listed above to ensure a smooth Q4 and mitigate Amazon restock limitations. Aside from inspections, it will also be advantageous to be on top of your FBA reimbursement process as you navigate inventory as a whole.

As any veteran seller will tell you, Q4 is chaotic even when things are running smooth. But with all the added pressures associated with this particular Q4, keeping up with changes and protecting your business has never been so important.

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