- May 21, 2023
The May of 2021 saw adverse changes of inventory management on Amazon. To gain some insight into the problem, let’s start with the question, what inventory method does Amazon use? We use the Fulfillment by Amazon (FBA) method of inventory management, in which clients ship products to Amazon fulfillment centers from where they are packed and dispatched to customers in neighboring areas. Clients utilizing this method suffered the most aftershocks of Amazon’s FBA restrictions (“Fulfillment by Amazon”).
These sudden, unprecedented changes call for reasoning or speculation. Response from Amazon Support has not provided elaborate enough reasons for such restrictions. Brands usually face restrictions for having a low Inventory Performance Index (IPI). What does IPI mean in Amazon? It is a measure of the efficiency of inventory management by brands in terms of storage fees, preservation of products and other indicators (“Inventory Performance”). However, clients are not susceptible to low IPI. What other reason could Amazon have for imposing restrictions? As the problem began shortly before Prime Day, we speculate that the market may have wanted to boost its own products. However, as restrictions continue to persist after Prime Day, clients are left more confused than ever.
What does this imply for clients in the future? As they continue to suffer from the aftermath of inventory restrictions, many clients are considering a shift to a different form of stock management, particularly Fulfillment by Merchant (FBM). However, the shift itself is a tedious process and requires overwhelming administrative costs. For starters, management of payments and refunds becomes the sole responsibility of the seller, whereas in FBA, this is handled by Amazon itself. Moreover, there is also a risk of losing Prime sales as FBM clients are deprived of Prime Eligibility. It seems that there is no visible risk-free solution to the problem and clients have landed in a tough spot, full of uncertainties and opportunity costs.
Earlier in this article, we mentioned IPI. One way to tackle the problem at hand is ensuring a healthy IPI for clients, ideally over 450. Moreover, if the shift to FBM is inevitable, it would prove helpful for businesses to create FBM SBKs that may act as shock absorbers. We would also urge clients to continue to reach out to Amazon Support to try and inquire the root of the problem.
To summarize, we addressed the sudden and unexpected changes in Amazon’s inventory policy that mainly targeted FBA clients. Low IPI seemed like an easy guess but did not quite add up as it impacted only brands and not clients. We also speculated that Amazon may have tried to promote its own products for the upcoming Prime Day, but this guess was also challenged when Prime Day passed but the issue did not abate. Response from Amazon Support also remained ambiguous. In these trying times, clients are forced to look for survival mechanisms like FBM SKUs and sales predictions for better inventory management. It is also possible to achieve a higher IPI through effective inventory management techniques. We are also hoping that Amazon Support will soon provide an elaborate statement on the matter.
