As we prepare for the second wave of COVID-19, the space in Amazon’s fulfillment centers is becoming sparse. According to our experts, the potential upswing in COVID-19 cases (combined with Prime Day and Q4) may cause capacity restraints for the amount of inventory Amazon will hold.
Note: Amazon has committed billions of dollars to make sure they can ship essential products and will do so even if it impacts non-essential ASIN sales. Amazon is pacing to open 33 new fulfillment centers in the US this year, which will increase peak fulfillment center standard-sized product storage capacity by nearly 35 million cubic feet more than last year. The retail giant also hired more than 175,000 employees and invested billions of dollars in COVID-related initiatives to help meet increased customer demand and protect their employees.
Despite these efforts, in 2020 Amazon Sellers are bearing the brunt of Amazon’s own inventory and delivery constraints resulting from COVID-19.
According to our experts, moving ahead, a diversified fulfillment strategy of FBA and FBM is clearly the key to mitigating risk in Q4 and next year:
“Success for Amazon Sellers in 2021 and beyond will be defined by their fulfillment capabilities and inventory management. Amazon recently announced significant changes to the Seller Fulfilled Prime (“SFP”) program that will take effect in February of 2021; these changes place much greater expectations on SFP Sellers and will result in most Sellers being unable to participate in the program while remaining profitable. More importantly, this SFP change may very well serve as an implication of greater expectations on Fulfilled by Merchant (“FBM”) Sellers and Direct-Fulfillment Vendors. In response, Sellers should be evaluating their fulfillment capabilities in preparation for holiday shopping in 2020 and throughout the next year,” Mark Russo, Marketplace Operations Specialist at Tinuiti said.
“Amazon has also very recently begun displaying Seller business names and addresses. That development, coupled with the ongoing third-party liability lawsuits and court rulings against Amazon, indicates that Amazon will continue to put measures in place to reduce its risk from third-party Sellers. Such measures can include more Seller information in the Buy Box or storefront, as well as stricter suspension guidelines in response to Negative Customer Experience (“NCX”).”
Amazon Updates IPI Threshold
According to a recent announcement, Amazon is changing the Inventory Performance Index (“IPI”) minimum threshold requirement to 500 and introducing ASIN-level quantity limits on products in FBA.
What this means is sellers below 500 will be subject to inventory limits effective August 16, 2020 through the end of the year. The majority of sellers will not be impacted by this change and most sellers with IPI scores below 500 will have more storage space than last year.
What is Amazon’s Inventory Performance Index (IPI)?
Inventory management can make or break sellers. Good inventory management has been known to reduce costs, scale profitability, and improve business growth for FBA sellers. Healthy inventory management can also help your products be received and delivered to customers more quickly.
According to Amazon, the Inventory Performance Index 2.1k (IPI) measures inventory management over time, including how well you balance inventory levels and sales, fix listing problems that make your inventory unavailable for purchase and keep popular products in stock.
“Sellers should regularly monitor their Inventory Performance Dashboard and its accompanying influencing factors to ensure they are making the best use of their allotted storage space and to reduce their storage costs,” Russo says.
“ASIN-level quantity limits are not a new strategy from Amazon. Amazon first established limits in March of this year to manage inventory as a result of COVID impact and is now re-introducing limits to help manage inventory leading into peak season. Applicable quantity limits can be seen in the Restock Inventory page. Affected ASINs will have a ‘Limited restock’ tag along with maximum inventory limits listed under Days of Supply. Sellers should review limits in conjunction with their FBA shipment planning.”
To create a removal order, please visit Inventory Age and choose Create removal order from the menu next to any FBA item in your inventory.
How to Measure IPI
Excess inventory percentage is the result of carrying too much inventory. This decreases profitability due to storage fees and holding costs and therefore you should be sure that you’re tracking your excess inventory percentage regularly in order to maximize profitability.
FBA sell-through rate is calculated by taking your units sold and shipped over the past 90 days and dividing that number by the average number of units available at fulfillment centers during that time period. You can improve sell-through by creating or adjusting your advertising strategy, by creating a sale, by auditing the product detail page, or by removing some of your inventory.
Stranded Inventory percentage is inventory that is not available for purchase due to a listing problem that has resulted in inventory without an associated active offer. Amazon provides a “Fix listing” option which goes on to detail the exact reason that your inventory has been stranded and provides you with the steps to resolve the issue.
FBA in-stock rate is the percentage of time your replenishable FBA ASINs have been in stock during the previous 30 days, weighted by the number of units sold for each SKU in the prior 60 days. When an ASIN is out of stock you should flag that ASIN as non-replenishable in the Restock tool.
Seeking to improve your IPI by Q4? Contact one of our experts today to learn more.