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E-Commerce Trends The Biggest Concern for Global (Amazon) Sellers! FBA Warehouse Inventory MAnagement Tips

Registration dateNOV 29, 2021

The Biggest Concern for Global (Amazon) Sellers! FBA Warehouse Inventory Management Tips
If you can’t avoid it, be prepared! By now any business that sells on Amazon will have experienced being confused about the frequent changes to Amazon’s program policies and Seller Central functions.

In fact, in a survey of more than 5,000 current Amazon sellers, it was found that 47% of Amazon sellers were concerned about changes to Amazon's policies and terms of service.[1] Amazon sellers are concerned because the changes to Amazon’s policies and regulations can have a big effect on them by putting them at a big disadvantage depending on the changes.

However, as the global e-commerce market continues to grow at this time, Amazon is expected to keep creating new revenue models and trying to maximize profits and updating its policies and regulations to suit itself. Therefore, in order to continue to be a successful seller on Amazon, it is necessary to constantly check for Amazon’s updates to its policies and regulations through Amazon Seller Central as well as on seller forums and other related online communities and prepare accordingly. Yet Another FBA Warehousing Policy Change Last year, one of the major policy changes that puzzled many Amazon sellers was the change in the “inventory storage limits” policy. Amazon restricted the amount of inventory storable in its FBA warehouses to 200 per item (ASIN), which came as a shock to many sellers. Of course, for Amazon, it must have been an inevitable decision that was made to try to keep pace with the rapid growth of the e-commerce market triggered by the coronavirus pandemic, maintain the growth in the number of new Amazon sellers, and operate its limited FBA logistics capacity as efficiently as possible. However, this policy change greatly affected sellers in Korea who now had to shoulder extra 3PL warehousing costs and deal with more lead time calculation problems stemming from long-distance deliveries.

Fortunately, in April of this year, sellers who were having a tough time received some good(?) news. Amazon got rid of the 200 storage limit per item restriction and instead switched to a policy called “Restock Limits By Storage Type,” where items were classified and given storage limits according to item type and item size, such as “Standard-size,” “Oversize,” “Apparel,” and “Footwear.”

It seems that the reason Amazon got rid of the previous 200 storage limit per item restriction was to reduce the sellers’ dependence on 3PL warehousing. In addition, through the change, Amazon intends to position its nationwide FBA fulfilment centers as not just warehouses to store inventory but as logistics hubs where items are warehoused in the right place and shipped out.

On the other hand, for sellers who mostly sell clothing and other categories of items that require a high number of SKUs, the policy change can be negative because it reduces the total number of items that can be warehoused. Therefore, it is important for sellers to carefully review whether the policy updates are beneficial or unfavorable to their business and prepare accordingly. Restock Limits & Storage Limits After the update, sellers could see the 2 new items called “Restock Limits” and “Storage Volume” in the “Manage FBA Shipments” menu on Amazon Seller Central. According to the new policy, each item type has its own restock limit, starting from a minimum of 1,000 items and varying according to the specifics of each item type, which will be explained below. In addition, because storage limits, which are based on volume and are measured in cubic feet, can be increased or lifted when certain conditions are met, the storage of inventory can take place without space restrictions.
[Restock Limits & Storage Limits] (Source : Amazon Seller Central, Inventory performance page)
In this way, Amazon rewards sellers who sell at high volume with increased storage capacity and volume and entices those with little sales to increase their sales volume through the storage restrictions.

Then how can one increase their restock limits and storage limits? The Amazon Inventory Performance Index score (IPI score) determines both the restock limits and storage limits. Amazon uses its IPI (Inventory Performance Index) which tracks how efficient and productive sellers are in managing their FBA inventory, as a measure of FBA inventory management. Amazon assigns an IPI score from 0 to 1,000, taking into account several factors, such as the balance between inventory levels and sales volume, the percentage of listings inactive, and the percentage of popular items in stock. In other words, the IPI score is a kind of credit score that Amazon gives to sellers. An IPI score above 450 is considered good and shows that the seller is managing their inventory well while a score of 550 or higher is considered excellent.
[IPI(Inventory Performance Index)] (Source : Amazon Seller Central, Inventory performance page)
Why is it important to achieve a high IPI score? The reason is simple. Just as you can get a bigger loan with a high credit score, maintaining a high IPI score allows the seller to have increased restock limits and unlimited storage limits. For sellers with an IPI score at or above 450, Amazon removes the storage volume restrictions and increases restock limits. However, if the IPI score goes below 450, Amazon restricts the seller’s storage volume and restock limits, making it more difficult for the seller to restock inventory at the right times. In fact, one Amazon seller I know overlooked the importance of maintaining their IPI score, which made it difficult for them to launch new products, resulting in them missing opportunities to generate more revenue. Therefore, it is important for sellers to systematically manage their IPI scores in order to receive increased storage limits, secure inventory stability, and prevent items from going down the rankings by keeping an adequate number of items in stock. The 4 Factors that Affect Your IPI Score Before we look at strategies on increasing your IPI score, we must first see what factors influence your IPI score. Your IPI score can be seen on the “Inventory Performance” page found in the inventory menu on Seller Central. Amazon’s algorithm automatically recalculates your IPI score every Monday (US time). Although Amazon has not revealed the exact specifics of how the IPI score is calculated, Amazon has given 4 factors that influence the IPI score, so it is important for sellers to be on top of these 4 factors.
  1. 01Excess Inventory %(Excess Inventory)

    Amazon’s Seller Central regulations define an item as excess or overstock when the amount of inventory exceeds a 90-day supply based on its forecasted demand. (Amazon Seller Central, Inventory Performance) However, even items that have been in storage for less than 90 days can be marked as excess or overstock items depending on past sales data, so it is important to constantly check and manage your excess inventory. Your excess inventory percentage is calculated dividing the number of units deemed excess by Amazon by the total number of your FBA inventory units. A percentage above 30% is considered bad and in need of urgent addressing.

    [Excess Inventory] (Source : Amazon Seller Central Manage Inventory Health page) (Source : Amazon Seller Central Manage Inventory Health page)
  2. 02FBA Sell-Through Rate (Sell-through)

    Your FBA sell-through rate is your sold and shipped units over the past 90 days divided by the average number of units in stock in Amazon fulfillment centers during that period. For example, if you sold and shipped 500 units over the past 90 days and had an average of 400 units available during the period, you will have a sell-through rate of 1.25. A sell-through rate of under 1.0 is deemed as “bad,” 1.0 - 2.0 considered “fair,” and above 2.0 as “good.” In other words, Amazon considers you a good seller if you are selling and shipping more than twice the average number of your units in stock.

  3. 03Stranded Inventory %(Stranded Inventory)

    Amazon deems an item to be stranded inventory when you have units stored in your FBA inventory but with no active offer for that item due to listing problems. Stranded inventory cannot be purchased by customers, leading to loss of sales and storage fees. It is important to quickly resolve stranded inventory to ensure that the percentage of stranded inventory does not exceed 5%.

  4. 04FBA In-stock Inventory Rate(In-stock Inventory)

    Your in-stock inventory rate shows how well you have managed your inventory without items going out of stock and how well you have handled customers’ orders. In other words, it measures how effectively you stocked popular items so that they didn’t go out of stock and were able to be sold to customers. The FBA in-stock rate is the percent of time the replenishable FBA ASINs have been in stock during the last 30 days, weighted by the number of units sold for each SKU in the last 60 days. A rate of 100% is considered “good.” It is important for sellers to closely monitor their inventory so that enough inventory is in stock in relation to customer demand and popular items never go out of stock.

    [FBA In-stock Rate] (Source: Amazon Seller Central Inventory performance page) (Source: Amazon Seller Central Inventory performance page)
What’s the most effective strategy to increase your IPI score? The basic way to increase your IPI score is to minimize inventory with low sales while having adequate inventory for items with high sales. Then what specific strategies should you employ for each of the 4 factors that influence your IPI score?
  1. 01Resolve listings with issues to make them active

    You can resolve listings with issues to make them active offers to increase your IPI score. Reasons that your items may be stranded or inactive are intellectual property violations, brand qualification requirements, poor product quality, safety issues with products, incorrectly inputted prices, etc. When you see that your products have been flagged as stranded inventory, you should go to “Inventory > Inventory Planning > Fix stranded inventory” on Amazon’s Seller Central to find out why they were flagged and quickly work to resolve the issues. Note that when you fill out the FBA Shipments form to store inventory, any inventory listed in the form will count toward your restock limits even if you decide not to submit the form, so it is important to delete any unused forms.

  2. 02Reduce Excess Inventory

    You can optimize your product keywords, use PPC advertising to increase traffic, and lower prices to increase sales conversion rates and reduce excess inventory. Also, if your excess inventory meets certain criteria set by Amazon, you can have your products included in Amazon Outlet deals at no extra cost to increase sales. However, if you still have too much excess inventory even after trying different ways to offload excess inventory, you can have Amazon destroy the inventory or use a FBA liquidation service to remove the excess inventory. Although it may be painful for a seller to destroy or liquidate their inventory, it can be seen as a last resort to increase their IPI score since inventory that is registered to be destroyed or liquidated no longer counts toward IPI score calculations.

  3. 03An Amazon seller’s worst enemy is to go “out of stock”

    For an Amazon seller, the worst thing that can happen besides getting your account shut down is to have an item go out of stock. When an item goes out of stock, your keyword ranking you spent countless time and energy on will plummet and so will your IPI score. Therefore, it is imperative that you manage your inventory well so that your products do not go out of stock. If it is temporarily hard to restock certain products, you can select “Hide recommendation” in the drop-down menu on the Restock Inventory page and notify that the SKU is non-replenishable. SKUs that are marked as non-replenishable do not count toward your in-stock rate.

    [Hide Recommendation] (Source : Amazon Seller Central Inventory performance, Restock Inventory page) (Source : Amazon Seller Central Inventory performance, Restock Inventory page)
  4. 04Set Restocking Period to 90 Days

    Looking at how Amazon calculates excess inventory standards and FBA sales volume forecasts, it can be deduced that the ideal restocking period is 90 days. Therefore, instead of sending inventory to a FBA warehouse in bulk all at once, it is better to determine how much inventory to restock every 3 months by analyzing the sales data of the past 3 months and only restocking the needed amount.

    On the other hand, for sellers that have sales volumes that exceed a certain amount, it can be worthwhile to consider using a 3PL warehouse to minimize variables and allow for urgent restocking needs. In this way, they can store inventory en masse in the 3PL warehouse and replenish FBA inventory as needed every 90 days to aim for a higher IPI score. In addition, it can also provide the ability to respond flexibly to periods where sales volume may be hard to predict or demand rapidly increases, such as during peak season or Black Friday.

Optimize your inventory management with Cello Square In conclusion, by assigning sellers an IPI score, which can be seen as a type of report card, Amazon seeks to best utilize its limited FBA warehouse space while maximizing revenues. At the same time, it is sending a message to sellers to maximize sales by increasing product turnover and optimizing inventory management. In this situation, sellers aiming to be successful on Amazon should recognize that they need to treat being an Amazon seller as a business and not just simply think of it as selling and thus establish a systematic sales and inventory management strategy. To this end, it is necessary to continuously come up with hero products and competitive new products as well as employ aggressive marketing to increase sales. You will also need to continue optimizing your inventory management by leveraging freight forwarders with experience in FBA logistics.

Cello Square, a digital forwarding service of Samsung SDS, is an authorized service provider in Amazon Korea’s SPN (Service Provider Network) and offers specialized e-commerce logistics services. Since we link with Amazon API, our clients can experience task automation such as real-time FBA inventory information, Shipping Queue order linkage, Tracking information updates, etc. In addition, we have warehouses in both the East Coast and West Coast of the US and provide inland transportation services to FBA warehouses. Therefore, sellers that struggle with inventory management can make use of Cello Square’s services to store inventory en masse at Samsung SDS’s local warehouses and restock FBA inventory as needed every 3 months and thus optimize their inventory management. We offer competitive fares and provide a safe and secure space for your storage needs by having strategic partnerships with major shipping lines and consol freight forwarders as part of a global network.
[Cello Square’s Amazon FBA Maritime Shipping Service]
(Source: Samsung SDS Cello Square)
In particular, Cello Square’s FBA maritime shipping logistics service provides prior consulting for the following services: domestic labeling, trucking, and export customs clearance at the point of departure; maritime shipping for international shipping; import customs clearance, transportation to warehouse, warehouse storage, and transportation to FBA warehouse at the point of arrival. It is therefore highly recommended to avail of Cello Square’s services because you can save on logistics costs compared to air shipping, efficiently respond to demand through the placing of inventory in the US in advance, and utilizing local warehouses to expand FBS capabilities.
References [1] The State of the Amazon Seller 2021, Jungle Scout

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Kontactic Kontactic is Korea's first and foremost Amazon consulting firm specializing in helping Korean companies become successful Amazon sellers.Kontactic Kontactic is Korea's first and foremost Amazon consulting firm specializing in helping Korean companies become successful Amazon sellers.