Amazon have recently given notice to upcoming changes in their long-term FBA storage fees and limits. These new changes are quite significant and I wanted to write a piece on how these changes will impact your business, how you need to structure your strategy moving forward, and give you my future predictions on the ramification of these changes in the supply chain.
There are three major changes to FBA fulfilment that directly impact strategic thinking for a business that sells on Amazon:
- Change of Long-Term Storage Fees from semi-annually to monthly.
- Increase in Storage fees.
- Changes to Inventory Storage Limits.
Change to Monthly Inventory Storage Fees:
Starting on the 1st of April, 2018, monthly inventory storage fees increased by 5 cents per cubic foot for standard and oversize items. On top of this, on August 15, 2018, items that have been in a Amazon Fulfilment Centre for more than 365 days will incur a monthly fee of $0.50 per unit and will move from a semi-annual assessment (read: charge), to a monthly assessment.
Change to Storage Limits:
From July 1, 2018, there will be a change to how FBA will assess the inventory health of an account. Inventory performance will now be judged on a points basis, with metrics such as percentage of excess inventory, sell-through rates, percentage of stranded inventory and in-stock rate (keeping your high volume items in stock), all providing key metrics. Through these numerous metrics, Amazon will give your account a cumulative score which they call your ‘Inventory Performance Index’. Should you score above 350 points on this index, you will be allowed unlimited regular and oversized inventory storage in Amazon.
How & Why
The opportunity for companies to utilize Amazon’s consumer based has resulted in a massive influx of new sellers over the past few years, with more and more sellers using the FBA program for automation. A by-product of this growth is companies & sellers using FBA as their own personal storage facility.
These big changes in fee structure is Amazon making a big statement that tells us that it does not want to be used as a storage facility, it is purely a fulfilment centre. The fact that they are rewarding accounts with good metrics by removing inventory limits, is further evidence to this.
This all works in favour of Amazon, they reward high volume accounts and incentivise businesses to use FBA for only their fast moving inventory.
How Does this Impact Your Business?
If you are utilizing FBA at the moment or plan to in the future, this is something that should be examined closely. It means your business needs to transition to using FBA only for faster moving inventory OR your inventory planning and management needs to be meticulous. Systems needs to be created within your business to allow drip feeding of inventory, so as to not have static inventory for longer than 6 months.
Previously, there were limits to oversize inventory. With a satisfactory Inventory Performance Index, you can now send as many as you would like. This means FBA now opens up as an option for fulfilling your oversized inventory. Using FBA for your products gives them better search ranking, and better conversion as Prime members get access to free two-day shipping. Again, your inventory management must be dialled in, as storing oversized units in Amazon can be costly.
Predictions for the Future
These changes will open up a new opportunity for warehouses and freight forwarders to offer storage to Amazon FBA sellers who wish to drip-feed their stock into FBA. We will start seeing this being offered more prominently within the next year or two. There will be increased demands from sellers and businesses that do not have their own warehouse facilities, to be able to use 3rd party storage that offer systems to drip feed stock into Amazon.
These changes are not all negative. They are a step in the right direction for all parties. Amazon’s hand was forced with these changes, however, I see it benefitting all parties. Check-in times will be much faster and FBA will become more efficient. Sellers with good metrics will now be able to offer oversized items more easily, which could increase revenues significantly.
As with any change, it is how you respond to it that will determine whether it is a positive or negative one. The opportunity is there to be taken.