Amazon recently announced some changes to its FBA sellers. It has many people understandably upset and worried about what this means for their business. To help put minds at ease we'll go over the announcement and what it could mean for sellers. We'll also cover how to avoid your FBA business being negatively affected by these changes, future policy shifts, and unforeseen issues.
On July 13th Amazon revealed some upcoming changes to its inventory storage policy. FBA sellers who have an IPI score below 500 will incur an inventory limit that will go into effect on August 16th and continue through the end of the year. They've also created new item (ASIN) limits that, once reached, will enact a hold on shipments of that product.
The shutdown of non-essential businesses led to a huge uptick in eCommerce sales, especially on Amazon. The sudden increase put pressure on every segment of the supply chain, causing a bottleneck and leading to delays. It also revealed some important information.
Firstly, it showed them where they're most vulnerable to issues. As with most things, supply chains tend to break down at their weakest points. This allowed them to see exactly where they need to reinforce every link to come back stronger.
Secondly, it gave them an idea of what's to come. While much of the panic buying and stocking up has passed, essential items weren't the only things that had a large increase in sales. With everyone stuck at home, they did a lot more shopping than usual and gave Amazon plenty of data to help them extrapolate future buying patterns and hint at what the upcoming peak holiday season might look like.
This new information regarding their weaknesses and people's quarantine shopping habits gave them a lot of insight. They decided to make these changes, along with others, to help them adjust. They're hoping that getting a head start before holiday shopping begins will help them prepare for peak holiday season demand and avoid any more issues.
Before explaining the consequences of a low score, let's go over what an IPI score actually is. An FBA seller's IPI score measures how well they manage their inventory. Amazon uses a scale from 0-1000 called the inventory performance index, or IPI, to measure how efficiently each seller keeps their inventory stocked.
According to Amazon, the factors they consider include excess inventory, how often products are in stock, and the amount of stranded inventory. The general idea is to have enough to fulfill orders–plus a little extra in case of unexpected sales or shipment delays–but without having a lot of excess inventory or items in stock without active listings.
It depends on a few factors, not all of which are clear. Many sellers worry that these changes could lead to larger sellers being significantly favored, but it's unclear if this is likely to be the case. Smaller sellers may also suffer due to the storage cost for leftover products or the fees Amazon charges for exceeding the limit. Sellers with varying product types are likely to be affected differently due to differing ASIN limits for each item as well.
These new limits could result in a need for smaller shipments more often and may require sellers to break up shipments to send some to Amazon and store the rest. Supply Chain Dive reported a related concern that limits may cause sellers who rely on less precise shipping methods to run out of inventory before the next shipment arrives. While these are some common concerns from experts and sellers, it's not an exhaustive list of possibilities.
While it's easy to think of Amazon as an unshakable eCommerce giant, that can be dangerous. Recent events have proven quite clearly that they can be affected by outside forces. Furthermore, this isn't the first time they've made these kinds of changes. This may have highlighted the issues, but they were always there, just under the surface.
The best way to protect your business from the company's whims and vulnerabilities is to diversify your fulfillment. Fulfillment by Amazon is a great service that provides many benefits & conveniences. However, as many have learned the hard way, keeping all your eggs in one basket always has a higher potential for loss. By using multiple fulfillment strategies, you can ensure that you never have all your inventory in one place in case disaster strikes and problems with Amazon's fulfillment won't destroy your business.
Having a third-party logistics (3PL) company manage some of your inventory opens you up in many ways. Not only will it help ensure that you can still have a thriving business regardless of Amazon restrictions and how well they handle the upcoming peak holiday season demand on top of the heightened COVID-19 sales, but it also gives you more control over business decisions. It will allow you to compare pricing between 3PL providers, store inventory in multiple locations to lower shipping costs and scale your business.
Rakuten Super Logistics is a well-established and trusted 3PL provider. We have 15 distribution centers to allow for flexibility and cost-efficiency, nation-wide 2-day shipping for increased customer satisfaction, reverse logistics services for returns, and we stand by a 100% order accuracy guarantee. We'll work with you to ensure that you, not Amazon, is in control of your business, help you grow, and meet your business goals for years to come. Contact us for a free quote today!