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Explaining Amazon’s FBA Storage Reductions

Amazon FBA (fulfillment by Amazon) is a vital aspect of any Amazon seller’s inventory management on the platform. Recently, as of May 2021, many third-party Amazon merchants discovered that their maximum FBA inventory capacity had been slashed by as much as 60%. Additionally, the standards for how the inventory is stored, how restock limits are calculated, and how Amazon calculates the quantity limits have all changed.

As a third-party seller on Amazon, you likely already know that these changes occurred. It is vital that you understand what happened to your store and how you can react to the changes in inventory standards. Here is an in-depth guide to Amazon’s FBA storage reductions.

Key Takeaways:

  • Amazon now calculates inventory limits based on the item’s storage type
  • Some shipments will be canceled if you do not follow Amazon’s new limits
  • Inventory management per Amazon’s new recommendations is key for third-party sellers

Fulfillment by Amazon: What Has Changed?

In 2021, Amazon has changed the way that ASIN numbers are stored, slashing storage limits for many third-party sellers in the process. The biggest change was the announcement that ASIN limits would no longer be calculated individually but per account. For some sellers, this created a small opportunity to downsize operations. For most, however, the new limits, which came without warning, drastically impacted their warehouse’s inventory capacity.

If you discovered that your maximum inventory levels had shifted and you were now over your lot limit by as little as 25% and as much as 60%, you are not alone. To understand these changes, we have to look at how Amazon calculates inventory in the first place.

On Amazon, a seller’s storage limit is calculated based on your store’s sales volume, inventory performance index (IPI), and fulfillment center storage capacity. The reduction in storage and oversized restock limits comes from changing the way ASIN capacity is calculated, which reduced most sellers’ maximum storage capacity after factoring in the new baselines of the three factors used in the calculation.

The result: a slashed inventory capacity. Many sellers are rightly wondering why this happened and what they can do about it.

Why did Amazon Make these Changes?

Sellers can lose FBA maximum inventory capacity normally. This occurs when their IPI score falls. The IPI is a system Amazon uses to assess your store’s ability to fulfill merchandise based on how well you manage your existing inventory. It does this by keeping track of how often you report being out of stock or how long you hold on to stock that never sells. For instance, if Amazon has to charge your account for over-storage, your IPI score will drop.

Sales performance is also a factor in IPI, affected by the efficiency of your store’s supply and fulfillment chain. Each quarter, Amazon sellers receive an IPI score (0-1000). Sellers know to keep track of this number and make adjustments where they can in order to keep it in the green.

The problem is that even sellers with great IPIs still lost inventory capacity due to Amazon’s recent changes. The reason they are doing this is still undetermined, but there are several possibilities.

The first is that Amazon has simply maxed out its storage capacity due to its own growth. Sellers have been used to over-stocking on the platform, utilizing long check-in times, and storing merchandise that will not sell for another month. One theory is that Amazon is simply maxed out and needs its sellers to cut back on their overstock. COVID-related operations costs may have been the last straw for Amazon’s already strained inventory network.

Another possibility is that Amazon has created these new limits as a competitive move. Ahead of the lucrative Prime Day, Amazon may have reduced their third-party sellers’ inventory capacity to emphasize Amazon-branded products in their warehouses.

Amazon’s unpredictable behavior in the last 12 months could be due to pressure from global events. In 2020, Amazon’s revenue was up 84%, which is exponentially more than the increases projected by previous years. This is likely due to the COVID pandemic changing shoppers’ habits. With increases in sales and the increasing need for storage, Amazon has also contended with social distance protocols, which have hindered productivity at its fulfillment centers.

Whenever a COVID outbreak occurs at a warehouse or packing center, delays and even closures must be instituted, which delays fulfillment even further. These additional operations costs may have motivated Amazon to reduce its sellers’ inventory capacity site wide.

Whatever the cause, the new cumulative ASIN limits have replaced the individual limits that sellers are used to. Before asking how to mitigate the damage, sellers should first ask if any aspect of this is actually a good thing.

The Bright Side of the Inventory Changes

Amazon could not have foreseen the increase in demand and the reduction in their warehouses’ fulfillment abilities as a result of COVID. The result is a well-oiled machine with a kinked hose: Amazon’s item delivery system is better than ever but its ability to get the items its fulfillment centers receive ready to go into stock and keep them there, is severely obstructed.

Despite many sellers feeling left out in the cold by Amazon’s policy changes, they should remember that Amazon is on its sellers’ side. They want to use their FBA network to fulfill your orders and they want to offer their customers a guarantee that the items they order will always be in stock. If their sellers cannot stock enough merchandise, Amazon suffers as a whole.

It is possible that Amazon’s inventory changes are intended to force sellers to stop overstocking unsold products and use the room for popular items that are easier to fulfill. Some Amazon sellers will be able to use the new inventory limits to their advantage, using the cumulative ASIN limits to focus on their best-selling products and take the strain off the fulfillment process.

However, for most sellers, these changes come with new difficulties. Some sellers will be more affected than others and it helps to be aware of the distinctions that will prompt more action on your part to stay ahead of these changes.

Who is Most Affected by the Changes?

Certain sellers have been more affected by Amazon’s inventory changes than others. Those hit the hardest are sellers with large inventories, for whom the percentage cut in maximum storage is a greater amount of product. A reduction in oversized inventory limits means that not only sellers with heavy products but those with physically large ones could be directly affected. Even a large bathmat, for example, could be an “oversized” item if it’s at least 18” on any side.

Prime Day sellers also face cutbacks stemming from the inventory changes since they weren’t able to overstock for the big sale day. In the future, these sellers may not be able to run the ad deals they used to. Since sellers cannot restock their Prime Day inventory until a certain amount has sold, their entire fulfillment process will be more limited.

Finally, sellers who face seasonal demands for their products will have trouble overstocking for their busy seasons with the new restrictions. They will have to deal with the disrupted workflow that results from not being able to raise and cut quantities when they need to. This impacts sellers who focus on back-to-school supplies, holiday shopping deals, and more.

Knowing who will be most affected by the changes, the question becomes: what can a third-party Amazon sellers do to mitigate the damage to their fulfillment process in the wake of these new restrictions?

How to Deal with Amazon’s FBA Storage Changes

With inventory slashed and oversized item restrictions posing a particular problem, many sellers, especially those listed above, will need to alter their business model to maintain their fulfillment process. Here are a few ways a seller can mitigate the damage:

  • Strategically advertise for your inventory – Merchants should get used to pushing the products they have in stock using social media visibility, exclusive deals, and refined Amazon SEO practices. Since you have less power to manipulate your inventory, you have to sell what you have before receiving more.
  • Focus on customer engagement – Brand marketing through video content, tutorials, social media posts, messages, customer Q&As, and more will improve your standing with Amazon and help you push specific products.
  • Enlist a third-party fulfillment company – Business buyers like Thrasio insist on using 3PLs to cope with these changes. These services can help you increase the efficiency of your inventory management. Amazon FBA’s new restrictions will take a lot of manpower to work around without the help of a fulfillment service that knows how to rework inventories for the new overstock limits and change your business model to maximize conversions and profits within the new Amazon criteria.

The Takeaway

Amazon’s FBA storage reductions impacted many sellers’ fulfillment processes without warning. Whatever the cause of Amazon’s changes, sellers bear the brunt of the responsibility to change their fulfillment processes to meet the new criteria. Understanding the effects of the changes as well as enlisting a third-party fulfillment company’s support in adjusting your business model accordingly are vital steps for Amazon sellers moving forward.