We sell large/bulky items via FBM. Our production lead time is 30–45 days, and ocean freight takes another ~45 days. That means we have to plan inventory nearly 3 months ahead.
Currently, our team relies on competitor analysis and gut feeling for initial orders. We often end up with either overstock or stockouts.
Two main challenges:
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New products – How to scientifically determine the first purchase quantity? Is there a framework we can follow?
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Existing products – How to forecast sales for the next 4 months? We currently use weighted historical sales + rank trends + promotions, but results are often off, especially when competitors make aggressive moves.
Any practical advice or models would be greatly appreciated.
Answers (5)
Break down the safety stock formula further:
Safety stock = (Max daily sales × Max replenishment cycle) – (Avg daily sales × Avg replenishment cycle)
The difference is your buffer for unexpected spikes and delays. Without it, you’ll stockout during the worst‑case scenario.
For the first few shipments, use faster shipping (e.g., air or expedited ocean) to test the market before committing to large volumes.
For existing products, unless you’re selling huge volumes, don’t overcomplicate it. Keep a moderate safety stock, but avoid over‑ordering. Since you’re FBM, you don’t pay Amazon storage fees, so holding a bit of extra inventory is less risky than for FBA sellers.
Also, monitor competitors across all channels. As soon as you see them making a move (price drop, new deal), reassess your replenishment plan.
Honestly, no perfect formula can fully protect against unexpected competition or macro changes (e.g., tariffs, platform shifts). You need to build flexibility into your supply chain – e.g., ability to divert shipments to other marketplaces if one slows down.
With 45‑day ocean freight + 30–45 day production, your total lead time is roughly 90 days. The key is accurate sales forecasting for the next 3 months.
If your supplier allows split orders, consider ordering in batches (e.g., 30/60/90 days) or bi‑weekly.
Safety stock formula:
Safety stock = (Max daily sales – Avg daily sales) × replenishment cycle
But even the best formula won’t save you if your sales forecast is wrong. Focus on product fundamentals: gross margin, conversion rate, category volatility, competition, and lifecycle. High‑margin, stable products can carry more inventory; low‑margin or volatile ones should be conservative.
To account for competitor impact:
Set a “competitor impact index” = price change × rank change velocity. For example, if a competitor cuts price and their rank jumps, you might reduce your replenishment by 20% when the index exceeds 0.5.
Also, hold a weekly inventory meeting to review at‑risk SKUs (both overstock and stockout risks). Relying only on data is risky – human review helps.