As we prepare for the second wave of COVID-19, space in Amazon’s fulfillment centers is becoming increasingly scarce. According to our experts, the potential upswing in COVID-19 cases (when combined with Prime Day and Q4) can lead to capacity constraints on the amount of inventory Amazon will hold.
Note: Amazon has tied billions of dollars to make sure important products can ship, even if it impacts non-essential ASIN sales. Amazon is ready to open 33 new fulfillment centers in the U.S. this year, adding nearly 35 million cubic feet of storage capacity for standard-sized products with standard fulfillment centers. The retail giant also hired more than 175,000 people and invested billions of dollars in COVID-related initiatives to meet increased customer demand and protect their employees.
Despite these efforts, in 2020, Amazon sellers will bear the brunt of Amazon’s inventory and delivery restrictions resulting from COVID-19.
According to our experts, having a diversified fulfillment strategy from FBA and FBM is clearly key to mitigating risk in the fourth quarter and next year:
“The success of Amazon sellers in 2021 and beyond will be determined 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 2021. These changes place much higher 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 well result in higher expectations for direct fulfillment sellers and providers (“FBM”) being met. In response, sellers should evaluate their fulfillment opportunities to prepare for vacation shopping in 2020 and next year. ” Mark RussoSaid Marketplace Operations Specialist at Tinuiti.
“Amazon also recently started displaying the seller’s company names and addresses. This development, coupled with ongoing third party liability suits and court judgments against Amazon, suggests that Amazon will continue to take steps to mitigate third party risk. These measures may include additional seller information in the box or in-store, as well as stricter guidelines for exposure in response to a negative customer experience (“NCX”). “
Amazon updates the IPI threshold
According to a recent announcement, Amazon is changing the minimum threshold requirement for its Inventory Performance Index (“IPI”) to 500 and introducing quantity restrictions at the ASIN level for products in FBA.
This means that sellers under 500 will be subject to inventory restrictions from August 16, 2020 through the end of the year. The majority of sellers will not be affected by this change, and most sellers with IPIs 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 is known to lower costs, scale profitability, and improve business growth for FBA sellers. Healthy inventory management can also help your products Received and delivered to customers faster.
According to Amazon, the Inventory performance index 2.1k (IPI) measures inventory management over time, including reconciling inventory and sales, troubleshooting listing issues that are causing your inventory to be unavailable for purchase, and keeping popular products in stock.
“Sellers should regularly monitor their inventory performance dashboard and related influencers to ensure that they are getting the most out of their allocated storage space and reducing their storage costs,” says Russo.
“Quantity restrictions at the ASIN level are not a new strategy from Amazon. In March of this year, Amazon first set limits for managing inventory levels due to the effects of COVID and is now reintroducing limits for managing inventory levels that lead into the high season. Please see the Refill Inventory page for applicable quantity restrictions. Affected ASINs have a “Limited Restock” tag and maximum inventory limits, which are listed under “Days of Delivery”. Sellers should review the limits in conjunction with their FBA shipping planning. “
To create a move order, please visit Inventory age and choose Create relocation order from the menu next to an FBA item in your inventory.
How to measure the IPI
Excess stock is the result of too much inventory. This reduces profitability due to storage fees and holding costs. Hence, be sure to keep track of your excess inventory percentage on a regular basis to maximize profitability.
FBA sales rate is calculated by taking your units sold and shipped in the last 90 days and dividing that number by the average number of units available at fulfillment centers during that period. You can improve sell-through by creating or customizing your advertising strategy, creating a sale, checking the product detail page, or removing some of your inventory.
Percentage of inventory stranded is inventory that is not available for purchase due to a listing issue that resulted in inventory with no associated active listing. Amazon has an “Fix this Listing” option that details the exact reason your inventory was stranded and the steps you can take to resolve the issue.
FBA inventory is the percentage of time your refillable FBA ASINs were in stock in the last 30 days, weighted by the number of units sold for each SKU in the last 60 days. If an ASIN is not in stock, you should mark this ASIN as not refillable in the Restock tool.
Do you want to improve your IPI by the fourth quarter? Contact one of our experts today to find out more.
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