Amazon’s FBA was updated on January 17, 2023 to enhance inventory management in its facilities. A new capacity limit will be introduced on March 1, 2023, to help merchants predict inventory needs more accurately and avoid overstocking. This comes as some merchants have faced challenges in deciding how much inventory to keep due to changes in demand, and the new parameter will replace the Inventory Performance Index and Storage Limit.
For each seller in the past, Amazon calculated an Inventory Performance Index (IPI) and Storage Limit.
The IPI number shows how well you manage excess inventory problems, maintain an ideal inventory level, and stock items with a high sell-through rate. To get a full analysis of your IPI value in Seller Central, select “Inventory Planning” followed by “Inventory Index” under the category of “Inventory”.
You can view the value here and figure out how to raise the IPI. High overstocks, a poor sell-through rate, stock without active offers, and insufficient stock on hand are causes of a low IPI. To get a greater IPI in our case, we must raise the sell-through rate.
The screenshot shows that the IPI can accept a value between 0 and 1000. The lower the IPI number, the worse Amazon assesses your inventory control. Formerly, a number of 400 was thought to be a crucial cutoff point for inventory maximums. If the IPI value was less than 400, Amazon provided a maximum inventory amount for the upcoming period. In other words, Amazon informed merchants of the quantity of an item.
Sellers can now request additional FBA capacity through our new Capacity Manager by specifying a reservation fee. Requests are objectively granted starting with the highest reservation fee per cubic foot until all available capacity has been allocated. Performance credits earned from sales generated using the extra capacity offset sellers’ reservation fees, up to 100%. This feature has been piloted with select US sellers and is now available for all to use, providing sellers with greater control over their space usage.
Amazon has responded to seller feedback regarding the difficulties of planning inventory procurement and navigating multiple sets of limits. As a solution, FBA capacity limits will now be presented as a monthly limit, replacing the weekly restock limits and storage limits. The upcoming month’s capacity limit will be communicated in the third week of each month via the Capacity Monitor in Seller Central and email notifications. The new capacity limits will factor in inventory on-hand and shipments in transit, and many sellers will have access to increased capacity volumes.
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Amazon’s new Capacity Manager enables sellers to request extra capacity by specifying a reservation fee. Requests are objectively granted based on the highest reservation fee per cubic foot until all available capacity has been allocated. When additional capacity is granted, sellers can offset their reservation fees using performance credits earned from sales generated using the extra capacity. This allows sellers to have greater control over their storage space while minimizing unproductive use. The feature was initially piloted with select US sellers and is now being rolled out to all sellers.
Amazon will now measure sellers’ inventory usage in cubic feet instead of units to better represent the capacity their products take up in fulfillment centers and transportation vehicles. Sellers can still plan in units, as inventory usage will also be displayed in that format. However, if a seller exceeds their capacity limit, they will be charged overage fees based on the highest estimated or confirmed limit for the given period. Overage fees aim to prevent excessive inventory levels and should not affect sellers who maintain healthy inventory levels. FBA capacity limits are determined by several factors, including sellers’ IPI scores, sales forecasts for their ASINs, shipment lead time, and fulfillment center capacity.
Amazon’s new capacity limit feature in the Capacity Manager provides sellers with information on available storage volume and the ability to request additional storage. However, sellers should be cautious about requesting additional storage and closely monitor sales figures and flow of goods to ensure it is necessary. The system’s method of calculating credits may unfairly benefit small, expensive products over larger, inexpensive ones. The impact of this new feature on sellers and the potential for further changes remains to be seen.
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