Sellers who use Fulfillment by Amazon (FBA) as part of their shipping strategy know by now that Amazon has imposed storage restrictions on inventory levels for Q4 of this year. After facing unprecedented demand this year, Amazon is taking a proactive stance to contain the challenges of a potentially very busy peak season by limiting the storage capacity of their warehouses for FBA sellers. The restrictions will affect sellers with lower volume inventory, based on historical stock levels and Amazon’s ASIN quality assessment. These restrictions may have a similar impact to sellers when Amazon placed restrictions on inbound shipments at the beginning of the coronavirus pandemic.
“Suppliers need to implement a plan to manage the very real possibility that Amazon’s FCs will be unable to accept enough inventory to meet Q4 demand. Make sure you have the internal and external resources needed to manage a sudden spike in FBM or SFP fulfillment during the height of the holiday peak. Also ensure that every internal team that touches FBM / SFP fulfillment (operations, sales, accounting, etc.) has a plan in place internally and with your 3PL to meet a big spike in FBM / SFP demand.”
It’s worth noting that Amazon also continues to increase the number of new fulfillment centers across the US, and hire thousands of new employees to help support sellers during this coming holiday season.
Amazon’s announcement of these peak season restrictions went into effect in August 2020. There are three main changes for third-party merchants storing goods in Amazon’s US warehouses:
- An inventory storage limit for sellers with overall lower volume (IPI below 500)
- An inventory storage limit for slow moving inventory (specific ASINs)
- Temporary promotion for zero cost inventory removal
The storage limitations are based on sellers’ historical inventory volume and sales, both on an overall weekly performance level, as well as a per-product basis. Here is a breakdown of the changes and the impact it will have on sellers during peak season this year.
Storage Limitations for IPI Below 500
What is IPI?
Amazon uses a metric called Inventory Performance Index (IPI) to calculate overall inventory performance over time. The metric is updated weekly, based on the past three months of sales benchmarked against inventory levels.
The following are included in the IPI calculation:
- Sales volume (including your sales’ seasonality periods)
- Historical IPI scores
- Available fulfillment center capacity
Storage capacity is measured by the total volume of inventory (measured by cubic feet). Amazon also factors the storage type of the products (standard-size, oversize, apparel, footwear, flammable, and aerosol) when determining the storage capacity.
Q4 Inventory Storage Limitations
During peak season this year, sellers with an IPI below 500 will have limited storage capacity with Amazon warehouses. A seller’s remaining 2020 storage limits will be determined based on their IPI during two score check weeks: the week of July 12, 2020 (Week 29) and the week of August 10, 2020 (Week 33).
Sellers with consistently higher IPI scores will receive higher storage limits, adjusted for sales volume and available capacity. When setting limits for the upcoming quarter, Amazon will consider both your recent sales volume and seasonal volume from the last year.
Sellers with an IPI higher than 500 are not subject to storage restrictions at this time. Amazon provides recommendations to track and monitor your IPI. The full explanation of Amazon’s changes can be found on their SellerCentral site.
Storage Limitations Based on ASIN Quantity
What is an ASIN?
Short for Amazon Standard Identification Numbers, the ASIN is a product identification number. These help distinguish products within Amazon’s catalogue—they do not correspond to any other identification outside of Amazon’s catalogue.
Q4 ASIN Limitations
This year Amazon is also imposing a limit on the number of specific ASINs that can be in the FBA storage at one time. This restriction is Amazon’s protection against having high inventory levels of items that are not selling at a high enough rate. It also maximizes the selection of products available for consumers during this high volume period.
Sellers will be able to stock inventory to accommodate three months of sales. Amazon promises that sellers will be able to track their inventory levels and make inventory level adjustments when possible. Ultimately Amazon wants to ensure all FBA sellers have enough room for their products. If a seller has inventory that sits for too long it will incur extra fees.
While there are no explicit metrics that Amazon cites as an acceptable ASIN quality level, their standard policy for items that haven’t moved for six months or more are assessed as semi-annual long-term items and incur extra storage fees. The good news is, the quality limit of a specific ASIN can change over time based on inventory levels and sales data. Read Amazon’s official explanation of the ASIN rules.
Free Inventory Removal (Temporary)
In order to promote more inventory movement within it’s warehouses Amazon has implemented a temporary free inventory removal service. This includes either returning the inventory to you or disposing of the inventory. Sellers can opt to have Amazon remove inventory that is old or not selling. This allows sellers the ability to create room for productive inventory in preparation for the holidays. This service began July 14, 2020 and is noted as temporary, although no end date has been publicized. Inventory removal usually incurs an extra cost.
What’s the Impact for Sellers
Hopefully sellers have had time to adjust their storage strategy prior to the implementation of these restrictions, unlike in March when Amazon abruptly restricted accepting new shipments of any goods deemed non-essential.
“Amazon’s continued focus on inventory management creates challenges for Sellers like us, but also forces us to operate our business more efficiently. While there is short term pain, it allows us to be more profitable and customer focused.”
Experts identify that sellers should plan to monitor inventory levels more often than usual in Q4 to limit stock outs or sending too much inventory to fulfillment centers. Amazon is explicit that if inventory arrives that exceeds your storage capacity, your items may be refused at the fulfillment center. Extra storage fees will be applied to any inventory that exceeds your specific storage limit.
“With increased demand and strain on Amazon’s FCs, some warehouses likely will face constraints in accepting and checking in inventory throughout Q4. It may be better to reserve some share of inventory to fill those last minute orders through FBM than have holiday inventory gather dust in a freight yard outside of an Amazon FC until the new year.”
Alternative Options for Sellers
Many companies have found these storage restrictions and frequency of these changes cumbersome and disruptive to their business. While Amazon may be a critical, if not the only, sales channel for many sellers, there are several alternatives to replace or augment their reliance on the Amazon FBA service.
Certainly both Seller Fulfilled Prime or Merchant Fulfilled Network are options if FBA is costing too much or creating too many headaches. With both services, the seller retains the value of Amazon’s massive marketplace, but has more flexibility and control with the storage and fulfillment of their products. Alternatively, sellers can take advantage of the growing number of online marketplaces, including Ebay, Walmart.com, and Target.com.
Working with a 3PL (third-party logistics provider) to help manage inventory is another great option. A good 3PL will have experience working with companies using Amazon Seller Central services (FBA, SFP, and MFN) and managing dropshipping for other marketplaces. They will have the infrastructure to help manage your inventory strategy and make recommendations on which Amazon program is the most efficient for you, based on sales, inventory, and product type. You can learn more details on FBA alternatives here.
If you have specific questions about how to navigate your Amazon business, or are looking for a 3PL to partner with, please reach out. DCL Logistics has an experienced and reliable team, dedicated to our clients success.