Amazon Squeezes Sellers to Optimize Warehouse Space

Amazon will impose stricter storage limits on sellers who use Fulfillment by Amazon (FBA) beginning in January. Sellers can blame the policy change on the company's push for faster delivery - specifically, transitioning Prime Free Shipping from two days to one. 

"While investing in our network, we need to manage our storage space so that we can continue delighting customers with products they love at faster delivery speeds," Amazon said.

The FBA policy "stick" comes with a "carrot" in the form of a promotion to help certain sellers who wish to remove inventory; it runs only through the end of October.

In notifying sellers of the policy change, Amazon said the response to its new Prime Free One Day delivery was "remarkable" and said it had invested hundreds of millions of dollars in its fulfillment and transportation network in the second quarter (April, May, June) to make one-day delivery possible. "We continue to upgrade our network to further speed up deliveries and invest in infrastructure, tools, services, people, and programs that benefit FBA sellers."

The crux of the announcement: "Effective January 1, 2020, we are changing the IPI threshold for storage limits to 400 (previously 350)." 

IPI stands for Inventory Performance Index, "a single metric to gauge your overall performance over time."

Amazon explained that sellers with IPI scores below 400 the week of December 23, 2019 would have storage limits imposed for the first quarter of 2020; sellers who maintain an IPI score of 400 or greater would have unlimited storage for standard size and oversize items (monthly storage fees and long-term storage fees still apply).

Amazon uses the IPI metric to measure the sellers' performance. "Your IPI score is based on how well you drive sales by stocking popular products and efficiently managing on-hand inventory."

Upon reading the announcement, one seller called it a terrible policy, "especially when Amazon refuses to provide the Equation for what you use to calculate the IPI." 

Indeed, we couldn't find the formula Amazon uses to calculate IPI. A FAQ on its help page that asks, "How do I calculate my IPI?" provides the following answer: "We calculate IPI for you based on how well you maintain inventory levels, fix listing problems that make your inventory unavailable for purchase, and keep popular products in stock."

Another seller said they believed Amazon needs to account for seasonality when measuring inventory performance.

Sellers now find themselves having to decide whether to take the chance that their products will sell well so they won't face storage restrictions next year, or take advantage of Amazon's promotion and remove certain inventory from Fulfillment Centers, but miss out on the busy holiday shopping season for those items.

Unfortunately Amazon made no mention of the new restrictions when reminding FBA sellers recently to get their inventory into its fulfillment centers by November 6th in order to make it available for Black Friday and Cyber Monday holiday shopping.

You can find Friday's announcement on Amazon Seller Central, where you'll find details of the related promotion. Be sure to read it carefully, as not all sellers qualify for free inventory removal this month.

Comments (2) | Permalink