For brands selling on Amazon, whether it be smart phone cases, fidget spinners, cosmetics, or luxury kitchenware, it’s crucial to maintain adequate stock levels to meet demand and to help keep your online business buzzing on the up and up.
Understanding Weeks on Hand Versus Weeks of Cover
Weeks on hand (WoH) means the average amount of time it takes a business to sell its inventory that it currently has on hold. Weeks on hand accounts only for inventory sitting in an Amazon fulfillment center. For businesses where there is high demand, this metric can also be measured in days. However, weeks of cover (WoC) tells sellers how long their current inventory on hand will last based on sales. WoC also takes into consideration inventory in transit to Amazon and confirmed purchase order units yet to be shipped. WoC also contains information about predicted sales volume as well as accounts for inbound units.
Weeks of Cover is calculated by dividing current inventory by average sales over several weeks in the past. WoC helps merchandising managers to think of inventory in terms of time. By keeping a close eye on weeks of cover, you can prevent inventory stock outs and avoid lost sales.
What Happens When You Run Out of Inventory?
Stockouts could have serious unintended consequences for online businesses, so let’s look at what could happen if this happens to you.
The most immediate effects of going out of stock could mean that Amazon automatically removes your listing. This means it will become listed as “Inactive”, which prevents you from making any further sales. Consequently, your potential customers will likely end up purchasing similar products from another seller’s listing.
Put Your Product Sales Rank & Visibility at Risk
If you run out of inventory and product listing becomes inactive, then you don’t only lose sales, but your listing ends up disappearing from search results. This is a huge problem, because your competitor’s active listings obviously still show up in searches on Amazon. As your competitors continue to generate new sales, they inevitably become able to source more product reviews. This will help your competitors build up their own SEO rank. Your SEO ranking will be affected by it, as once your listing is reactivated, it will take some time to earn your way back to the top of the search results.
Lost Sales Velocity
Most brands have several peak busy seasons throughout the year, which will exhaust inventory at a much faster pace. Sellers and brands must know when these busy seasons and trends are to be able to plan accordingly through maintaining certain levels of inventory to avoid running out. Merchandising managers should know their sales trends over the last year or two to get a sense for their high sales velocity days, weeks, and months.
Take Action to Avoid Stockouts
There are a couple of measures brands can take to manage their inventory when it’s running dangerously low.
- Pause your ad campaigns to drive fewer people to your product’s listing.
- Invest in an inventory management tool. Tools like this will display forecasting months ahead and give brands detailed insights into various sets of data to view and plan for inventory allocation and stocking up accordingly.
- Maintain good communication and relationships with your supplier and distributor. This will benefit sellers during peak seasons and tentpole deal events.
- According to Amazon, “FBA sellers should maintain four weeks of cover to allow Amazon to distribute inventory across multiple warehouses. Ecommerce orders come from across the United States. Having distributed stock helps provide faster delivery to customers.”
Using Pacvue to Maintain Healthy Stock Levels
With Pacvue Commerce, the Weeks of Cover Trend widget takes into consideration your inventory that’s currently in transit to Amazon, as well as confirmed purchase order units that have yet to be shipped, so you have a more holistic view and understanding of your inventory. As we mentioned above, if an ASIN goes out of stock at Amazon, that ASIN will take a huge hit in terms of its search ranking and relevancy. Pacvue Commerce allows sellers to ensure retail readiness, from purchase orders to in-stock issues and planning. Users can leverage Weeks of Cover in advertising rules to help reduce bids based on the WoC metric.
For example, if the WoC for a particular ASIN reaches below four, a rule can be used to reduce bids for that ASIN by a set percentage amount. If the WoC reaches two, then reduce bids by a higher percentage. Having a tiered approach to more aggressively reduce bids as the WoC decreases will help the ASIN remain in-stock longer therefore preserving its search ranking and relevancy.
Request a demo today to learn how Pacvue Commerce can help you identify shelf gains and losses and forecast your sales and profits.