In theory, a fulfillment warehouse benefits your business by handling storage, shipping and logistics while you focus your energies on selling. On July 1, Amazon instituted a new policy regarding inventory management, putting third-party sellers at risk of penalties and curtailed services that can seriously impact their business.
"Setting a Bar" for Third-Party Sellers
Amazon's Inventory Performance Index (IPI) is a self-described "first step in setting a bar" for inventory management practices of outside vendors. Each seller receives an IPI score based on how well they adjust listings by eliminating slow-moving SKUs.
IPI scores, ranging from 0 to 1,000, are reduced whenever inventory is deemed to stay in storage too long. Once a score dips below 350, the seller is restricted from bringing new products in and charged a monthly "overage fee" on inventory exceeding a set limit.
Too Many Customers, Not Enough Space
With more than half of the products sold onsite coming from third-party sellers, Amazon has invested millions of dollars to increase its warehouse space. Experts estimate that the Amazon footprint currently exceeds 100 million square feet, after average increases of 35 percent per year since 2007.
Before July 1, outside sellers had no restrictions to the amount of storage space they could rent. As a result, the cost of Amazon's fulfillment warehouse operations grew 43 percent last year to more than $25 billion, accounting for the largest chunk of the company's overall operating expenses.
Unfortunately, sales didn't keep pace, growing at a rate of only 31 percent. Faced with the difficulty of adding warehouse space fast enough to accommodate demand, Amazon began looking for ways to ease the pressure.
Amazon Looks for Solutions
Initial methods were less punitive, incorporating proactive ways to provide Amazon benefits without taking up the company's warehouse space.
• In January 2018, Amazon began testing an invitation-only program called FBA Onsite. Participating companies install Amazon's warehouse management program in their own warehouse, and they also get the advantage of Amazon's shipping rates for two-day delivery.
• Amazon Prime is generally available only to merchants using Amazon's warehouse space, but Seller Fulfilled Prime lets select third-party sellers receive Prime benefits for products shipped from their own warehouses. The program has met with resistance because vendors do not receive Amazon's shipping rates, making two-day delivery too cost prohibitive.
Seasonal vendors figure to be the most vulnerable to the IPI program. With sales spiking during particular seasons, these sellers could see their IPI scores hitting dangerous levels during off-peak times. While seasonal vendors such as Ephraim Ausch of Benevelo Gifts have been assured by Amazon that "it's not a long-term solution," it remains to be seen where the program will lead.
Medallion Fulfillment & Logistics: Your Success Is Our Number One Goal
Are Amazon's new policies putting a squeeze on your business? We offer a full range of fulfillment warehouse services that are scalable to meet your company's unique needs.
If you are currently a client of Medallion, are you using our services to reduce your Amazon storage fees? Most of our clients store the bulk of their inventory in our warehouse and periodically ship replenishment inventory to Amazon. We want you to know that Medallion's storage fees are less than half of Amazon's storage fees.
If you are not a current client, please contact us for a completely free analysis of your existing logistics plan to determine if our services can save you money and time moving your product to your customers.
We invite you to contact Medallion Fulfillment & Logistics to learn why we are the preferred solution for your fulfillment warehouse needs for online and Amazon selling.
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