AMAZON’S INVENTORY RULES ARE CHANGING
As Amazon continues to dominate the e-commerce retail space, more brands are utilizing the Amazon platform to sell their products. Unfortunately, with the current world pandemic, the business climate and rules are adjusting, and Amazon’s Fulfillment Center Policies are changing to reflect these new realities.
Amazon has physically limited warehouse space
Because Covid has dramatically increased the demand for ordering online and contactless drop offs, Amazon has had to adjust how much inventory that sellers can send to their fulfillment centers. As an Amazon Brand Accelerator and Advertising Partner to Amazon, we here at Marknology help our clients build their brand across the Amazon platform and assist with the obstacles that sellers face, especially in the logistics department.
Inventory Performance Index (IPI)
Amazon uses an IPI metric to calculate how much inventory that each seller can send into fulfilment centers and how many cubic feet (cu) is allotted to each seller.
So, what exactly is the IPI? Each seller’s IPI number score is based on how well the seller keeps popular products in stock, maintains healthy inventory levels, and fixes listing problems. In Seller Central, there is an Inventory Planning Dashboard that shows sellers their IPI Score, from 0-1000. Just like a Credit Score, the higher the IPI score, the more inventory the seller can have sitting in Amazon warehouses.
Healthy IPI Score?
The threshold to have a healthy IPI score was 400 before the pandemic, but Amazon has raised that metric to 500. This change has led to many sellers rushing to raise their IPI score. If a seller does not meet the new threshold, their allowable inventory levels will be decreased, and they can be charged an astronomical amount of money to keep their “standard-size storage” and/or “oversized storage” in Amazon’s fulfilment centers.
A 2020 SELLERS’S PROBLEM & HOW WE SOLVED IT TOGETHER
If this has happened to you, you are not alone. We have helped brands get over this hump and save thousands of dollars in excess inventory fees.
One of the brands we partner with, started 2020 with an average IPI score of 383 (which is under the minimum threshold, even back when it was 400.) This brand was not meeting the minimum threshold. We received a warning from Seller Central at the beginning of the month telling us that we had exceeded the ‘oversized storage CU’. We were going to be charged $3,000+ if we didn’t increase our IPI score and get our oversized storage back ‘to the green’ by the end of that month.
We had just 31 days to sell off almost 200 extra Cubic Feet, otherwise we would be charged the large penalty. So, we had a “there is no need to panic party” with our partner brand and then created a strategic plan. (FYI, Amazon calculates oversized storage as boxes that are 18”x14”x8” or over 20lbs.)
OUR ACTIONABLE STEPS
- Choose a cutoff date. Stock might need to be pulled back before the end of the month to avoid the fees. We chose the 20th, that would give us time to create the removal order and get the excess inventory product moved out from the fulfilment center.
- Then we downloaded an inventory report list and worked with the brand to delete any products that had 0 inventory in FBA and wouldn’t be replenished soon. (This would increase their in-stock rate which would increase their IPI Score.)
- We then set daily sales targets that would reduce their storage footprint. Using pricing and strategic advertising along with #2, we slowly decreased our oversized storage from 200+ cubic feet. Our target was an allotted 25 cu.
- We monitored the IPI Score daily.
- A joint decision was made on the 20th to not pull inventory back. We were close to our target, but it would be down to the wire. We decided to let our processes continue and if there were any fees, they would be minimal.
- On the 31st we checked their oversized storage cubic square feet and IPI Score. You can see the results below.
We were able to get our IPI score up over 425 and our oversized storage under 25 cu, which has given the brand the ability to ask for more oversized and standard-size storage in the Amazon fulfillment centers.
Amazon is a commercial beast and is continuously growing but do not let it intimidate you. As a seller, you have the ability to overcome excess inventory issues. The steps taken above is a guideline tool to help you as a seller, handle this situation if it may arise. Always use the Amazon “search for help” bar on your seller home page. Make that your best friend for answers and continuous updates from Amazon.
If you find yourself looking for a partner to help launch, grow, and solve problems on Amazon, we are here to help! To find out more, please visit Marknology. You can also find us on LinkedIn.
Marknology Team Lead