In the world of Amazon FBA, speed isn’t just about fast deliveries; it starts way earlier in the production cycle. The time taken between placing an order and receiving the finished product – commonly known as lead time – holds the potential to make or break your Amazon enterprise. Here’s a comprehensive look into why lead time is pivotal for your FBA business.
1. Production Dynamics:
The significance of production lead time cannot be understated. An extended lead time implies that a substantial portion of your capital remains locked in the product cycle. If your product costs you $10 to produce and has a 30-day lead time, you’ll need to invest in at least a month’s worth of inventory every time you restock. So, a higher sale rate, though profitable, demands more capital reinvestment because of the long lead time. Streamlining the production process to shorten this time can significantly enhance capital turnover.
2. Freight Considerations:
The logistics involved in transporting your goods, especially from international locations like China, can be time-consuming. Depending on the size and weight of your products, sea freight might take over a month, while air freight shaves this down to approximately 10 days. To avoid stockouts or prolonged wait times, adopting a hybrid shipping strategy can be beneficial. For instance, rush 10-20% of the stock by air and send the rest via sea. For those just starting, prioritizing small, lightweight products can also aid in faster, cost-efficient air shipments.
3. Navigating Competition:
In the fiercely competitive Amazon marketplace, agility is key. A nimble lead time ensures you can promptly react to competitors’ strategies. A longer lead time, on the other hand, could offer your competitors an undue advantage, allowing them to cement their position while you play catch-up. Partnering with manufacturers offering faster turnarounds can arm you with the flexibility to adapt swiftly.
4. The Restocking Strategy:
Seasonal sales surges, like during Christmas, can be both a boon and a bane. While they promise enhanced sales, they also bring the risk of running out of stock. A prolonged lead time in such scenarios can result in plummeted BSR rankings and lost sales. Efficient restocking, aided by reduced lead times, is crucial to leverage such sales spikes fully.
5. Ensuring Healthy Cash Flow:
For emerging Amazon sellers, cash flow is paramount. Extended lead times can strain cash flows, locking in substantial amounts in inventory. Even with profitable sales, the financial health might be skewed due to pre-emptive restocking requirements. Reducing lead times or maintaining buffer stock can offer some respite.
6. Accelerated Break Even and Expansion:
A product’s break-even point directly impacts business growth. Extended lead times push the break-even further, delaying the profit realization. Conversely, shorter lead times speed up the product testing phase, allowing for quicker expansions and diversifications.
7. Optimized Return on Investment (ROI):
ROI is the compass guiding business investments. The logic is simple: the faster you can churn your inventory, the higher the ROI. A $10,000 stock yielding returns in a month undoubtedly offers better ROI than the same amount invested for two months.
To Conclude:
While certain factors like a manufacturer’s inherent processes might be beyond a seller’s direct control, informed decisions regarding product and supplier selection can significantly influence lead times. Sellers must be proactive and strategic in their approach to lead times, given their profound impact on liquidity, competitiveness, and overall profitability. Remember, in the Amazon ecosystem, it’s not just about the speed of the race but also about when you start.
