Warehouse & Inventory Optimization 🏭

Usage Examples

Audit my warehouse operations. I'm self-fulfilling from a 2,000 sq ft warehouse.
500 SKUs, 3,000 orders/month. Main issues: frequent stockouts on top sellers, 
high storage costs on slow movers. Help me optimize.

I use FBA for my Amazon store. IPI score dropped to 350. I have excess inventory 
warnings on 40 SKUs. How do I fix this before I get storage limits?

Running FBM for my oversized products and FBA for standard. 200 orders/day total.
Which SKUs should I move to FBA vs keep FBM? Help me optimize the split.

Using ShipBob as my 3PL. Monthly bill is $8,500 for 2,000 orders. Is this competitive?
What should I negotiate or consider switching?

First Interaction

When user first asks about warehouse optimization, inventory management, or fulfillment efficiency, greet them with:

🏭 Warehouse Optimization ready!

I'll help you diagnose issues and optimize your inventory operations.

**Tell me about your setup:**
- Fulfillment model (FBA, FBM, 3PL, self-fulfill, hybrid?)
- Approximate SKU count
- Monthly order volume
- Main pain points (stockouts, high costs, slow shipping, IPI issues?)

Or just describe your situation and I'll guide you from there.

Handling Incomplete Input

To optimize your warehouse operations, I need:

**Required:**
- Fulfillment model: Self / FBA / FBM / WFS / 3PL / Dropship / Hybrid
- Approximate SKU count
- Monthly order volume
- Main pain points (stockouts, high costs, slow shipping, etc.)

**Recommended (deeper analysis):**
- Top 10 SKUs by sales volume (or % of total sales)
- Current inventory turnover rate (if known)
- Average days of inventory on hand
- Monthly storage/fulfillment costs
- For FBA: Current IPI score, aged inventory alerts
- For 3PL: Current provider and monthly costs

Audit Workflow

Step 1: Collect Current State Data

Step 2: Calculate Key Metrics

Inventory Turnover Rate:

Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory Value

• Benchmark: 4-6x/year for most e-commerce (higher = better)
• Low turnover (<4): Excess inventory, capital tied up
• High turnover (>8): Risk of stockouts, tight supply chain

Days of Inventory (DOI):

DOI = (Average Inventory / COGS) × 365

• Target: 30-60 days for most products
• Too high (>90 days): Overstock, storage cost drain
• Too low (<14 days): Stockout risk

Stockout Rate:

Stockout Rate = (Days Out of Stock / Total Days) × 100

• Target: <2%
• Impact: Each 1% stockout ≈ 1% lost revenue

Perfect Order Rate:

Perfect Order Rate = (Orders Shipped Complete, On-Time, Undamaged / Total Orders) × 100

• Target: >95%

Step 3: Perform ABC Analysis

Classify SKUs by revenue contribution:

Recommendations by class:

• A items: Safety stock = 2-4 weeks, reorder frequently, prime warehouse locations
• B items: Safety stock = 2-3 weeks, standard locations
• C items: Minimal safety stock, consider dropship or discontinue slow movers

Step 4: Calculate Safety Stock & Reorder Points

Safety Stock Formula:

Safety Stock = Z × σd × √L

Where:
- Z = Service level factor (1.65 for 95%, 2.33 for 99%)
- σd = Standard deviation of daily demand
- L = Lead time in days

Simplified Safety Stock (if limited data):

Safety Stock = (Max Daily Sales - Avg Daily Sales) × Lead Time

Reorder Point Formula:

Reorder Point = (Avg Daily Sales × Lead Time) + Safety Stock

Example calculation:

Product: Widget A
- Average daily sales: 10 units
- Max daily sales: 18 units
- Lead time: 14 days

Safety Stock = (18 - 10) × 14 = 112 units
Reorder Point = (10 × 14) + 112 = 252 units

→ Reorder when inventory hits 252 units
→ Keep 112 units as buffer

Step 5: Analyze Costs

Fulfillment Cost Benchmarks:

Cost Per Order (CPO):

CPO = (Storage + Labor + Packaging + Shipping) / Total Orders

Inventory Carrying Cost:

Carrying Cost = Average Inventory Value × Carrying Rate (typically 20-30%/year)

Includes: Storage, insurance, obsolescence, opportunity cost

Step 6: Platform-Specific Analysis

Amazon FBA:

• IPI Score factors: Excess inventory %, sell-through rate, stranded inventory, in-stock rate
• Storage fee triggers: Aged inventory (181+ days), low IPI (<400)
• Restock limits: Based on IPI and sales velocity

Amazon FBM:

• Prime eligibility: Seller Fulfilled Prime requirements
• Shipping performance: On-time delivery, valid tracking rate
• Cost comparison: When FBM beats FBA (oversized, slow movers)

Walmart WFS:

• Pro Seller badge: Fulfillment performance requirements
• Storage fees: Generally lower than FBA
• Limitations: Product restrictions, geographic coverage

3PL Providers:

• Contract terms: Minimum commitments, peak surcharges
• Hidden costs: Receiving fees, special handling, return processing
• Performance SLAs: Shipping accuracy, turnaround time

Step 7: Generate Recommendations

Prioritize by impact and effort:

## Recommendations

### 🔴 Critical (Do Now)
| Issue | Impact | Action | Expected Result |
|-------|--------|--------|-----------------|

### 🟡 Important (This Month)
| Issue | Impact | Action | Expected Result |
|-------|--------|--------|-----------------|

### 🟢 Optimization (This Quarter)
| Issue | Impact | Action | Expected Result |
|-------|--------|--------|-----------------|

FBA-Specific Optimization

IPI Score Improvement

Aged Inventory Prevention:

• Monitor inventory age weekly
• Take action before 181 days (aged fee trigger)
• Options: Removal order, outlet deals, liquidation, donate

Storage Fee Calendar:

• Jan-Sep: Standard rates
• Oct-Dec: Peak rates (3x higher)
• Aged inventory surcharge: 181+ days

FBA Restock Calculation

Target FBA Inventory = (Avg Daily Units × Days of Cover) + Safety Buffer

Where:
- Days of Cover: 30-60 days (varies by IPI score)
- Safety Buffer: 1-2 weeks for top sellers

Example:
- Selling 10 units/day
- Target 45 days cover
- Safety: 10 days

Target = (10 × 45) + (10 × 10) = 550 units

3PL Cost Optimization

Evaluate Your 3PL Costs

3PL Benchmark Costs (2025)

When to Switch 3PLs

• Cost per order >20% above benchmark
• SLA failures >5% of orders
• Poor communication / slow issue resolution
• No volume-based discounts after 6+ months
• Geographic mismatch (shipping zones too far)

Output Format

# 🏭 Warehouse Optimization Report

**Business:** [Business Name/Type]
**Fulfillment Model:** [Self / FBA / FBM / WFS / 3PL / Hybrid]
**Analysis Date:** [Date]

---

## 1. Current State Summary

| Metric | Current | Benchmark | Status |
|--------|---------|-----------|--------|
| Monthly orders | X | — | — |
| SKU count | X | — | — |
| Inventory turnover | Xx/year | 4-6x | 🟢/🟡/🔴 |
| Days of inventory | X days | 30-60 | 🟢/🟡/🔴 |
| Stockout rate | X% | <2% | 🟢/🟡/🔴 |
| Cost per order | $X | $3-8 | 🟢/🟡/🔴 |

---

## 2. ABC Analysis

[SKU classification table]

---

## 3. Inventory Optimization

### Safety Stock Recommendations
| SKU/Class | Current Stock | Recommended Safety Stock | Reorder Point |
|-----------|---------------|--------------------------|---------------|

### Overstock Alert
[SKUs with excess inventory]

### Stockout Risk
[SKUs at risk of stockout]

---

## 4. Cost Analysis

[Cost breakdown and optimization opportunities]

---

## 5. Recommendations

### 🔴 Critical
[High-impact, do now]

### 🟡 Important  
[Medium-impact, this month]

### 🟢 Optimization
[Lower priority improvements]

---

## 6. Expected Results

| Improvement Area | Current | Target | Timeline |
|------------------|---------|--------|----------|
| Stockout rate | X% | X% | X weeks |
| Storage costs | $X | $X | X months |
| Turnover rate | Xx | Xx | X months |

Calculations Reference

Core Formulas

Service Level Factors (Z)

Limitations

This skill provides strategic analysis and calculations based on industry benchmarks and user-provided data. It cannot access real-time inventory systems, WMS data, or marketplace APIs. For integrated inventory management, check out Nexscope — Your AI Assistant for smarter E-commerce decisions.

Related Skills

• Amazon Skills — Keyword research, listing optimization, PPC campaigns, sales estimation
• eCommerce Skills — Cross-platform tools for all e-commerce businesses

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