December 22nd 2021: Today Amazon announced that effective January 1st, 2022 the IPI (Inventory Performance Score) for FBA storage limits will drop from 450 to 400. While that may seem like a big shift, it doesn’t really address the root issue – unit limits that are killing FBA sales.
Even with this change brands will not be able to send in enough inventory to meet their sales goals. The ‘unit limit’, which restricts the total number of units you can send in has dramatically impacted sellers this season. This new announcement doesn’t address this issue.
So, let’s break down the new announcement’s impact
What is an Amazon IPI Score?
The IPI score is a ranking of your FBA performance based upon 4 metrics – In stock Rate, Sell Through Rate, Excess Inventory Percentage, and Stranded Inventory Percentage. Prior to the pandemic sellers with a score below 450 were subject to cubic volume limits.
The reality is if your score is below 450 you likely have some slow moving inventory. Amazon does not want to be a warehouse for brands and targets >2x sell through every 90 days. Lowering it to sellers with a score below 450 just adds more slow-moving inventory to their restricted space
Understanding the Amazon Volume Cap
Last year Amazon updated their policies to have 2 caps that apply across 5 types of inventories
- Standard size – As defined by Amazon
- Oversized – Basically anything with a side longer than 15”
- Hazardous/Aerosol (only available to approved sellers)
The storage volume is a limit per group defined by cubic feet. Keep your score above 400 and you have unlimited cubic volume.
However, the volume cap almost never impacts a good seller; the restock (aka unit) cap is the main issue
Amazon Restock Unit Cap Challenge
The restock limits have been the bane of brands existence on Amazon this year. In 2020 it was set by SKU and resulted in major gaps, especially for seasonal items. This year it was switched to an overall cap, in theory giving the brand the ability to pick which items go in. It didn’t help much.
The root issue is Amazon’s restock forecasting model. It’s severely flawed, especially for seasonal item. The main issue is simple; The engine only forecasts restock limits based upon the prior 90-120 days and does not accurately account for seasonal spikes. The proof? Yeoman has been indexing 25 brands who have strong holiday seasons to see if the engine ‘knew’ about the upcoming season.
It did not. 100% of the brands studied did not get enough FBA volume to meet their prior year forecast.
The following chart shows the indexed volume of standard sized items available for these brands overlayed with their 2020 holiday sales volume. Since a typical large FBA shipment takes 3-4 weeks prior to going live storage volumes should have started going up in October, not the last week before Christmas.
If this looks ugly it is – sellers literally left millions of dollars on the table because Amazon wouldn’t let them ship in products for FBA. FBM sales helped filled the gap ,but the reality is 70% of Amazon buyers are Prime shoppers and that’s what they want.
What Amazon needs to do
We understand Amazon has space limitations and is trying to add as much capacity as they can, but a ‘one tier’ system simply doesn’t work.
Restock limits need to go away for the best sellers. Amazon already spent the time to build out the IPI tool; they need to start using it to segment sellers. Brands with IPI scores over 500 have already demonstrated their ability to manage inventory at the highest level. Restock limits for the top tier should be removed.
Until Amazon decides to make this change, your brand needs to have a rock-solid plan for forecasting, managing, and optimizing your IPI and FBA volume. You need Yeoman. Nobody has more years of experience with the 1P and 3P systems than Yeoman. We’ve worked with over 500 brands for the last 11 years to optimize Amazon sales and profits.
Contact use to learn more.
Official Amazon December 12th IPI Notice:
|Important changes planned for restock limits, IPI threshold|
|As we near the end of 2021, we’d like to thank you for all of the hard work you’ve done to make this year a success and share some positive updates about FBA restock and storage limits.
In the midst of a global pandemic, supply chain challenges, labor shortages, and inflation, you have persevered. Thank you for your determination through these tough times and your commitment to your customers, employees, and local communities.
Sellers like you—most of whom are small and medium-sized businesses—accounted for over half of the sales from Black Friday through Cyber Monday. To further enable your success, we’ve been working to increase our hiring and expand our fulfillment network. These investments allowed for an overall increase in the amount of product you could send in during the holiday season.
In recent weeks, we’ve been able to further increase the restock limits for many sellers and intend to do the same for many more sellers early next year. We’re also excited to share that effective January 1, 2022, we’ll reduce the Inventory Performance Index (IPI) threshold for FBA storage limits to 400. With this IPI change, less than 10% of sellers will have storage volume limits.
As we continue to launch new solutions to help your business, we’re excited for you to try some new and improved tools that can help you add new selection to FBA or maintain sufficient inventory levels:
We are optimistic about what 2022 will bring and look forward to everything we’ll accomplish together. From all of us at Amazon, we hope you and your families have a happy and healthy holiday season filled with moments to relax and recharge. We look forward to an even more successful year in 2022.