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Being a planner or buyer is challenging and knowing what state your inventory is in for any item at any given time is crucial to your success. If you over order, you may run into excess and obsolete issues. If you do not order enough, you may not be able to fulfill as many customer orders as you need to. In other words, the challenge for planners and buyers is to balance your ordering which you can only do if you know and understand your inventory state and position for every SKU.
What are the Three Inventory States?
There is very little room for a planner to make mistakes. A simple breakdown of inventory into one of the three states is an easy way for a planner to identify imbalance so they can take corrective action. Every stocked item can be positioned as either overstocked, understocked, or balanced. In an ideal world, 60-80% of you inventory is in a balanced state. The remainder of which would be classified as overstocked or understocked. Inventory in these two states should drive your workflow by calling out exceptions so you can take corrective action.
What defines the Three Inventory States?
Your traditional inventory "saw-tooth" diagram best illustrates the three inventory states, as seen above. And, there are two key inventory parameters that define the saw-tooth diagram - safety stock and cycle stock. The simplest inventory state to identify and the one that draws the most attention is the understocked position. It is when an item is below the safety stock level or has no inventory, and is therefore in a (potential) stock out position. Next, an item where the stock on hand is greater than the maximum inventory level (where maximum inventory = safety stock + [2 x cycle stock]) is considered to be in an overstocked position. Lastly, an item where the on hand value falls within the cycle stock range is considered to be in balance.
How do you Manage your Inventory in these States?
Knowing these three states and being able to report your inventory in one of these three states is the first step towards building an actionable, exception-based workflow. There are varying degrees of urgency associated with each state depending upon the circumstance and tolerance. Understocked items are the most important to action which requires you to place an order and, possibly, expedite it. Balanced items fall under typical ordering schedules where you are buying under normal circumstances taking into consideration forecast accuracy, lead times, PO minimums, containers, etc.. Overstocked items can drive exceptions requiring you to cancel or defer orders, and, in severe cases, throw promotions.
What should be your takeaway?
Most planners have too many items to manage. You want to, therefore, work and manage the exceptions. Learning and applying these inventory states to drive your exceptions and workflow will not only help you reduce workload, but also focus your attention on items that need handling and review. After all, there are only 18 action exceptions that can be derived from categorizing your inventory into these three states...can you figure them out?
I often get asked what is the most important aspect of inventory planning. The answer is easy, accurate lead times. Lead time is one of the most important and influential data inputs to your demand and inventory planning software. It still amazes me how often companies will blindly use the lead times provided to them by their vendors and not validate or calculate the true, performance lead time before placing an order.
Demand and inventory planning software is extremely sensitive to bad data. We have all heard the expression, "garbage in, garbage out". Nothing could be more true when talking about bad lead times. Inaccurate lead times will impact and degrade your forecasting, safety and cycle stock calculations, and replenishment plan.
How does Lead Time Impact your Forecasting?
Perhaps the most overlooked consequence of poor lead times is the impact it has on your forecasting. Best of breed software solutions will use lead time to calculate how wrong your forecast might be over the lead time horizon - lead-time forecast error. The lead-time forecast error will influence which forecast model is selected in sophisticated statistical forecasting engines. If your lead time is not accurate, your forecast engine may not be selecting the best forecast model in its simulation or tournament of best fit since the projected forecast error over lead time may be unreliable. After all, planners, like forecasting software, should be most concerned with the lead-time forecast when reviewing the accuracy of monthly or weekly forecasts.
How does Lead Time Impact your Safety and Cycle Stock?
There are numerous ways to calculate safety and/or cycle stock. When optimizing your safety stock based on service level objectives, not only is the forecast and forecast error considered, but so should the lead time and the lead-time error. More simply put, the longer the lead time and the likelihood your supplier won't perform to that lead time, the more safety stock you should carry to maintain your service, and vice versa.
When placing orders, if you are trying to minimize your total annual costs by using the economic order quantity (EOQ) to define your cycle stock (:= 1/2 EOQ), the EOQ is directly proportional to the forecast, which as already discussed, could be unreliable as the forecast selection is dependent upon the projected forecast error over lead time.
How does Lead Time Impact your Order Plan?
The replenishment plan is the system calculation most impacted by poor lead times. Having inaccurate lead times could either generate orders too earlier or not early enough. The calculated receipt dates could also be wrong which in turn impacts your ability to fulfill customer orders if inventory is not available when it is expected. Generally, it is when planners are reviewing their order plan that they will see and consider the impact of bad lead times. The results of which are felt by your entire business.
What should be your takeaway?
Having a system calculate and manage (1.) lead time along with (2.) an estimate of how wrong your lead time may be is critical to optimizing all functions of your planning software. Planning for poor lead times will be felt by the entire business and, possible, lead to inventory imbalances - overstocking and understocking. Lastly, lead time is only hyphenated when it is used as a compound adjective. For example, it is really important to focus on your lead-time accuracy.
A core competency of any inventory planning system is inventory optimization and strategy. In my last blog "What is the difference between Inventory Management, Planning and Optimization", I only touched on some basics. Here, I plan to provide more insight and detail with the focus being at the item by location level, or the bottoms-up level of inventory optimization.
Inventory optimization can be a key influencer to your return on investment of any software, however, most planners do not proactively manage their inventory strategies. Consider that your inventory planning software is a complex mathematical engine designed to manage the errors throughout your supply chain, managing your inventory optimization and strategy is essential to understanding what that error is costing you, in both dollars and service. Nevertheless, inventory planning is still overlooked as a value added task and process which planners should add to their workflow schedule.
What is Inventory Optimization and Strategy?
Everyone knows how important inventory is to distributors and retailers – no inventory, no sales. Inventory optimization and strategy is a set of rules you apply to your items that will minimize the amount of inventory you need to provide the customer service you want and can afford.
Every company would like to fulfill all customer orders all the time but the cost to do so is too high based on the inventory investment required, especially for low volume, highly volatile items. Inventory optimization balances the cost of inventory against desired service levels to maximize your profit. Your inventory plan and strategy addresses how you apply and manage that balance across your stocked items. The two most important drivers of your inventory optimization and strategy is your cycle stock optimization and your safety stock optimization.
What is Cycle Stock Optimization?
Cycle stock optimization is how you set your item-level ordering quantities based on the costs of holding your forecasted inventory versus the transaction costs of ordering and receiving it. The economic ordering quantity formula is a well-known model of cycle stock strategy that considers some of these cost trade-offs. Your cycle stock represents half of your ordering quantity. Cycle stock, however, is often driven by minimums and multiples like case pack quantities. Cycle stock optimization considers forecast, numerous carrying and ordering costs and any line-item ordering constraints. Generally, your cycle stock strategy makes up most of the inventory you have stocked which is why it is important to manage in your inventory optimization and strategy policies. By planning and optimizing your cycle stock, you can achieve significant service levels without holding any safety stock.
What is Safety Stock Optimization?
Where cycle cost optimization is mostly cost driven, safety stock optimization is service driven. Optimizing your safety stock strategy is generally perceived as inventory optimization despite it being the smaller aspect of the two key components. Key factors considered in safety stock optimization are your service level targets, your forecast, how wrong your forecast might be, your lead time and how wrong your lead time might be. Lastly, a key consideration in safety stock optimization is the amount of service your cycle stock will provide with no safety stock.
Traditional safety stock methods such as a fixed safety stock, days of supply or forecast, or even simpler service-level methods do not consider all these factors. Safety stock strategies should, however, vary across all your items as there is never one answer for all items. Stratifying your safety stock policies by ABC classification is a simple and great way to approach your inventory optimization and strategy.
What should be your takeaway?
Every stocked item will be subject to your inventory optimization and strategy such that you can map your “sawtooth” diagram to understand your past, current, and future investment. By applying cycle stock optimization and safety stock optimization you will optimize your inventory investment while achieving desired services levels. After all, your inventory investment for a single item or for all items is simply your safety stock plus your cycle stock – an easy way to forecast your future inventory investment.
greg marmulak | founder | dash/APPLICATIONS
a software and inventory expert, greg has been living inventory optimization for the past 18 years, working with manufacturers, distributors, and retailers.
I often get asked what the difference is between inventory management, planning and optimization. It is an important question and one that needs to be answered and understood, especially when you are looking to purchase software to help you with your inventory. There is, of course, some cross over, between the three (picture a Venn diagram), so I will provide some examples to best describe and highlight how they are each unique in their own way.
What is Inventory Management?
Inventory Management is often misused to describe inventory planning and inventory optimization. Although, it does and should include some inventory planning, like a min/max type of inventory policy, it almost never includes inventory optimization.
Think of Inventory Management as the tracking and trace-ability of inventory through out the supply chain. A good example would be RFID tracking. Using bar coding to track and know where your inventory is in your network at any given time is the simplest and most unique way to differentiate that which Inventory Management does, but inventory planning and optimization do not.
What is Inventory Planning?
Inventory Planning is what most companies look for to understand their inventory position and to control their inventory levels and investment. Inventory Planning in its simplest form is included with Inventory Management. And, an optimal inventory plan will and should include Inventory Optimization. So, they are intertwined and Inventory Planning sits in the middle.
Back to what exactly is Inventory Planning. From a bottoms-up perspective (i.e., item by location), it is a proactive inventory policy that defines what your cycle stock and safety stock should be. The policies are such that they can be forward looking to help you understand where your inventory investment will be. A typical example is calculating policies by the number of days of forecast you should order and stock, respectively (e.g., days of supply).
From a top-down perspective, Inventory Planning is the forward looking investment in inventory spend. This is generally performed at a product category level and deemed to be your open-to-buy budget and extremely popular among retailers where working at the item by location level can be cumbersome (especially in fashion).
What is Inventory Optimization?
Inventory Optimization can be viewed as a sophisticated inventory plan. It takes on two forms, a bottoms-up inventory plan and a top-down inventory plan.
The top-down inventory plan, if optimized, can be referred to as network optimization. It is the optimal inventory investment for all stocking locations and all items within a distribution network. The bottoms-up plan if optimized is referred to as multi-echelon inventory optimization. This is the item by location inventory plan for each item at every stocking location. To be optimized at this level, safety stock is driven by a service level target and the cycle stock is derived by the trade-off in carrying and ordering costs.
Reconciling both the bottoms-up and top-down plan is the key to optimizing the inventory investment. The end result being a forward-looking, time-phased replenishment plan that takes into consideration how wrong the forecast is, the variability in lead-time, your service level objectives, the costs of inventory, and the budget and investment constraints of your business.
What make the most sense for you?
Each business has its unique needs and issues. If you are looking for Inventory Management, a warehouse management software will generally have the functionality you are looking for. But, if you are looking to manage and control your inventory spend and investment so your inventory does not get out of control, I recommend starting with the simplest approach - a top-down software like open-to-buy planning. Start with managing your sales objectives, your purchase orders, your profit and margin targets, and from there back into an inventory budget that you are comfortable with. Translate that budget into a prioritized list of orders, hence balancing your financial goals with your assortment.
greg marmulak | founder | dash/APPLICATIONS
a software and inventory expert, greg has been living inventory optimization for the past 18 years, working with manufacturers, distributors, and retailers.
So you acquired a new customer via your stellar advertising efforts, now what? Our partners at FeedbackWhiz put together a short article detailing how you can leverage email to not only nurture relationships with your customers, but also gather more reviews to help improve that all-important conversion rate and ability to win more customers in the Amazon jungle. If you’d like to learn more about how reviews affect your advertising performance, check out our article on FeedbackWhiz’s blog here.
Communicating with your customers by email is an important part of your seller toolkit, but doing it right can require a little delicacy. There are strict Amazon guidelines around how you should communicate with your customers and what you should and shouldn’t say.
When crafting an effective Amazon product review email, the tone is certainly important, but so is the layout of the email. How and when you deliver your email content will have an important impact on the way your customer responds.
Creating email templates can save you time and money, enabling you to send effective Amazon product review emails with little more than a click of a button.
Here’s everything you need to know about crafting and sending the most effective emails possible.
When to Send Your Emails
First, let’s think about the scheduling of each email. When it comes to email campaigns, less can often mean more. Customers may respond to emails initially, but things often trail off quite quickly. If you send too many emails or schedule them at the wrong time, it can reduce their impact and could even cause irritation.
In general, you should send a maximum of three emails and each of them must have a purpose. The receiver needs a good reason to open the email – otherwise, it’s heading for the trash folder.
Always think about your end goal. What outcome do you hope will be produced by the email? Do you want the receiver to click through to leave a product or are you hoping to build your relationship with them in the hopes of creating a repeat buyer?
It is important to never send an email to an Amazon user who has opted out of receiving emails. Amazon allows buyers to opt-out of receiving emails that do not contain or relate to crucial information related to a purchase.
Crafting Effective Subject Lines
When it comes to emails, the first thing someone sees is the subject line. If you’re sending lots of emails and nobody is opening them, it could be because you are not writing compelling subject lines. In other words, you are not giving the customer a clear reason to click to open.
It is important to note that your open rates can vary depending on the type of product you are selling. If it’s an expensive item, people are much more likely to open emails about it than they are to open an email about a less expensive, smaller item.
However, in general, you should hope to see an open rate in the area of 35% and customers leaving product reviews at a rate of 1-2%.
Those figures, though, will be boosted if you can encourage more people to open your Amazon product review emails. This all begins with your subject line. Avoid vague subjects – tell the receiver exactly what the email relates to and why they should open it.
For example, when sending an order confirmation, you could start with: ‘Hello, your order [[ORDER_ID]] is on its way!’ This will encourage the buyer to open it up to see when they can expect the item to arrive.
Crafting an Effective Email Layout
When designing an email, getting started is often the most difficult part. If you can prepare a number of templates in advance, it can save you these creative headaches at the time of sending. The exact look of these email templates will be different depending on when you send them and what you hope to accomplish but here are a few general design rules to keep in mind:
Here is a sample effective template idea that can be used for different situations:
1. Order Confirmation
You want to reassure them that the product they ordered has been safely dispatched.
Subject: Hey there, Regarding your Amazon Order [[ORDER_ID]]
Thank you so much for your purchase of [product name]. We go to great lengths to ensure our product meets the highest standards. We hope you enjoy it. If you do have any questions, you can contact us at [customer services email].
In the meantime, you can track the progress of your product here [link to tracking page]
2. Purchase follow up
This could go out to the customer in the days or weeks following purchase. This is a good time to try and get a buyer to leave a product review because the product is still fresh in their mind.
Subject: Re: Amazon [[ORDER_ID]] Tell us how we did!
We hope you’re enjoying [order ID]
We do our best to ensure all our products meet and exceed your expectations. As you know, Amazon depends on people like you for feedback on their products to help other customers. If you can spare a few minutes to leave feedback, it will help us to continue improving our service.
Many sellers will stop there, which is fine, but it may be useful to send a third and final email. You can use this final email as an opportunity to include additional information, like a user guide or e-book, to help the buyer get the most from your product. Customers love to receive this sort of information and it shows them that you are willing to do a little more than others to keep them happy.
Send this a little while after the product has been delivered. This gives the buyer a chance to use the product for a longer period and meaning they may be able to give a more thoughtful, detailed, product review. Remember, some products require time to take effect (think beauty supplies or supplements). First impressions any not be the most accurate so waiting can be to your advantage.
Try something like this:
Subject: Regarding your Amazon Product [Product Title]
Our records show it has been a few weeks since you received [our product]. We hope you’re continuing to enjoy using it, but if you do have any questions don’t hesitate to contact [customer services] for support.
There are many different ways for you to enjoy [our product]. We’ve put together this handy guide to show you some of the fantastic things you can do with it.
We are always striving to get better and rely on feedback to help us improve. A little of your time and a few words would go a long way to ensure this while helping other buyers make an informed decision. If you have not already left a product review, it would help us and our buyers tremendously if you can do so.”
Effective Color Coordination
In designing emails, simplicity is almost always the best option, but this does not mean that you can ignore details. Intelligent use of color can increase sales.
Red, for example, is often thought of as the best color for encouraging purchases. It excites us and represents desire or anger. It can prompt us to action.
Green, on the other hand, as a milder effect and is often used in products that seek to summon up an image of nature.
Yellow is the first color on the spectrum that the eye sees. It is a great attention grabber.
Carefully consider the message and brand image you are trying to convey and use your colors accordingly. If it is not pleasing to the eye or sends the wrong message to your buyers, it will not be effective.
Images and gifs can also make the emails stand out. High-quality images of the product being used help the buyer envisage the different ways they can use it.
Measuring Your Results
Finally, tracking your metrics will help you understand what does and does not work in your email templates. There is no one, clear, recipe for success with automated email templates so you need to pay close attention to your own results and make adjustments where necessary.
Using a software tool like FeedbackWhiz can help you not only design eye-catching templates as shown in the example earlier, but it can also help you accurately target the audience and timing using different triggers. Other features include: Tracking open rates, A/B testing subject lines, and monitoring any reviews that you receive. The more information you can gather about your sent emails, the finer tuning you can do and the more effective your email campaigns will be.
rob stanley | chief marketing officer at feedbackwhiz
robby is the chief marketing officer at feedbackwhiz, the premier amazon seller tool for merchants to boost their business, repair feedback, improve amazon product reviews, and automate high-volume emails. he is responsible for the strategy and execution of feedbackwhiz's digital marketing which includes, social media, video marketing, influencers, and brand awareness.
amazon agency bi-weekly — what operations data matters for reporting in seller central and vendor central?
I promise you I am not attempting to start a heated debate about “what matters” on Amazon for brands and agencies. The only outcome in that scenario is a Pyrrhic victory at best. My intention is to help those focused on growing Sales on Amazon figure out which data points to pay attention to, and how to think about them as they relate to success on the channel.
In our last post, I outlined the Operations data that is available to brands on Vendor Central or Seller Central. Remember, we are operating from the definition of Operations data as, “The set of reported metrics Amazon makes available directly relating to your sales and traffic performance on the platform.” This collectively includes revenue, traffic, and inventory data that will help you paint an accurate picture of Amazon performance for your team internally or your clients looking for guidance.
amazon agency bi-weekly — what reporting data is available in amazon’s seller central and vendor central?
Last post, we gave you a few options for how to report on Amazon data, specifically Amazon Advertising API data and Operations data that you can extract from Seller Central or Vendor Central. If you are just getting started in running your Amazon-focused digital agency or managing your own brand on the platform, the obvious next step is to now figure out what you should report on to communicate the most important KPI’s on Amazon. In order to do that, you’ll need to first understand what data is available to you in each respective platform, Vendor Central and Seller Central, and where to locate the reports that contain the metrics. Please note that this was written in June of 2019 and the available information in Amazon is subject to change, as Amazon often does. In this article, we’re going to focus on Operations data that is available and will move on to which metrics to present (visually report) and how Amazon Advertising API data fits into this mess in the next few weeks’ worth of posts. As a working definition for ‘Operations’ data, we will use this: “Operations data is the set of reported metrics Amazon makes available directly relating to your sales and traffic performance on the platform.”
In our last article, we described the data that’s available in the Amazon Advertising API to give you a sense for what to expect when you first connect. The obvious next question is, “Now that I have the data, what do I do with it?”
As an agency that manages multiple brands or a brand that operates on the Amazon platform, you are painfully aware of the ongoing requirements to inform and direct your clients or stakeholders through the Amazon abyss. We collectively refer to this process as ‘reporting’ as a means to communicate the state of a brand’s Amazon presence and performance. Agencies and brand owners know that reporting can be both a best friend and a worst enemy. Below we explain limitations on ‘Operations’ data, advantages of Amazon Advertising API data for reporting, and three ways to report on Amazon Advertising API data designed to avoid common issues. We are not endorsing any one tool in particular that we mention by name, and you should do proper due diligence of each solution to ensure that it will work for your agency’s or brand’s use case.
Last week we explained the advantages of getting your data through the Amazon Advertising API versus manual report downloads. This week, in our Amazon Agency Bi-Weekly, we break down what data lives within the Amazon Advertising API so you know exactly what to expect when you first connect. I’ll be speaking on this topic and more at Boulder Startup Week on May 16th — check out the session details here.
How is the Amazon Adverting API data different from the manually downloaded reports?
According to our Amazon contacts, the Amazon Advertising API and the manual downloads are both populated from the same data source. As such, the data that can be found in the manual downloads, can also be found through the Amazon Advertising API. However, trying to find comparable manual report data in the Amazon Advertising API data is not straightforward, and you’ll need to know the where and how to track it down.
This week we assess why Amazon Advertising API data, and a corresponding data storage solution, is crucial for your agency’s, brand’s, or investment firm’s success. No matter how you slice it, API data is crucial to understanding and growing your Amazon business.
I’m switching gears a bit this week as this very question came up while I was working with a paid media agency in the Denver area. It went something like, “Can I get by working with the manual advertising report downloads that come out of Amazon directly?”. The short answer —no. Keep reading to avoid the pitfalls of relying on manually downloaded Amazon advertising reports.
Your manual process won’t scale
If you are just getting started advertising on Amazon, you likely have stumbled across the manual advertising data reports that are available for Sponsored Products and Sponsored Brands as seen below.