Managing Aged Inventory on Amazon: Essential Strategies for Sellers

Handling unsold inventory on Amazon can lead to increased storage costs and reduced profit margins. Fortunately, there are practical solutions to this challenge. By implementing effective inventory management practices, sellers can address the issue of aged inventory, increase sales, and boost profitability on the platform. Let's take a detailed look into inventory aging and the strategies to manage it efficiently on Amazon.

What is Inventory Aging on Amazon?

Inventory aging, formerly known as the long-term storage fee, poses significant hurdles for Amazon sellers. These problems arise when products remain in Amazon's fulfillment centers for over 180 days, resulting in an aged inventory surcharge applied on the 15th of each month, in addition to the usual storage fees.

Beyond financial implications, inventory aging can negatively impact critical performance metrics, such as your Inventory Performance Index (IPI) score or a product listing’s sales rank. Essentially, it involves identifying products that are sitting unsold and accumulating storage fees, thereby affecting your cash flow. Understanding inventory aging and knowing when to adjust pricing, promote, and restock items can improve inventory turnover and increase profits.

The Impact of Inventory Aging on Your IPI Score

Aged inventory can have a big effect on a seller’s IPI, which takes into account various aspects of inventory management, like maintaining adequate stock levels, addressing listing issues promptly, and availability of key products. The age of your inventory has a direct impact on your IPI.

There are two primary ways inventory aging influences the IPI score:

1. Older inventory is more likely to become obsolete, as a result leading to increased write-offs.
2. Aged inventory often tends to have higher days of supply, resulting in slower sales velocity.

Both factors contribute to a lower IPI score. Amazon sets a base IPI score, and failure to adhere to this threshold can lead to storage restrictions on your account, necessitating improvement in your inventory levels.

To avoid inventory aging, aim to maintain no more than two to three months’ worth of stock in fulfillment centers. However, balancing this poses a significant challenge due to factors like manufacturing lead times, shipping durations, and warehouse processing times.

Strategies to Prevent Incurring Aged Inventory Surcharge

Proactively managing old stock is vital to prevent the aged inventory surcharge. Here are some effective strategies to clear out older inventory before the next cleanup date:

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

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

Amazon applies the fee for aged inventory monthly, usually between the 18th and 22nd of each month.

Successful Tactics to Deal with Inventory Aging on Amazon

1. Evaluate Inventory Turnover Rates: Monitoring inventory turnover is crucial for understanding the sales velocity of your products. To determine this rate, divide the cost of goods sold (COGS) by the average inventory value. A high turnover rate signifies that products are selling quickly, whereas a low rate indicates that items are remaining in storage for longer periods. Recognizing slow-moving stock enables you to take necessary measures to address aging inventory issues.
2. Carry Out Strategic Inventory Planning: Strategic inventory planning involves adjusting stock levels in accordance with demand forecasts and sales trends. When planning inventory, consider factors such as seasonality, market dynamics, and product life cycles. Properly balancing supply with anticipated demand helps to minimize excess stock and reduce the likelihood of inventory aging.
3. Predict Future Demand: Demand forecasting involves projecting future sales volumes for each product based on past sales data, current market trends, and customer feedback. Accurate demand forecasts enable better inventory management, preventing problems related to both overstocking and understocking, which can contribute to inventory aging.
4. Make Use of Amazon’s Inventory Age and Health Reports: Amazon’s inventory age and health reports offer valuable insights into your stock's condition, identifying older and slow-moving items. Regularly reviewing these reports allows you to proactively manage inventory aging, taking necessary steps to optimize inventory control and improve turnover.
5. Enhance Product Listings and Visibility: Improving the quality of your product listings and their visibility can drive sales and reduce inventory aging. Focus on optimizing product titles, descriptions, images, and keywords to attract more customers. Additionally, utilizing effective marketing strategies, such as advertising and promotions, is crucial for increasing sales and addressing slow-moving inventory.
6. Promote Slow-Moving Inventory: To boost sales of slow-moving inventory, implement marketing strategies like discounts, special offers, and targeted campaigns. Utilize Amazon’s advertising tools and external marketing channels to promote discounted or clearance items, providing incentives that encourage purchases and help reduce aging inventory.

Concluding Thoughts

Effectively managing aged inventory on Amazon is crucial for sellers looking to stay competitive and enhance their profitability. Stagnant inventory leads to additional costs and penalties, while also negatively affecting key performance indicators like sales rank and the Inventory Performance Index (IPI). To succeed in the competitive Amazon environment, sellers need to adopt a proactive and precise inventory management approach.