In a recent announcement, Amazon will be rolling out a new system for managing FBA storage capacity beginning March 1, 2023, potentially bringing huge changes to how third-party sellers can manage their FBA inventory limits.
Some New Features
The new system will, in essence, introduce four big changes affecting sellers who use Amazon FBA, namely the following:
1. A single, month-long FBA capacity limit. Under the current system, sellers should keep track of a weekly restock limit and a quarterly storage limit, which can be a chore especially for smaller sellers. The new system will combine these into a single, month-long FBA capacity limit per storage type, which Amazon says aims to give sellers more predictability and control over their FBA inventory.
2. Estimated capacity limits to help sellers plan three months in advance. Amazon will introduce estimated capacity limits, which will allow sellers to plan three months in advance by providing estimates for the following two months, effectively removing some of the guesswork that sellers wrestle with when trying to manage their inventories and sell-through rates. The estimates will depend on a number of factors, including the seller’s Inventory Performance Index (IPI), sales forecasts, shipment lead times, and the available resources that Amazon has to support them.
3. The opportunity to request a higher limit. Under the new system, sellers will now be able to request a higher limit based on a specified reservation fee through the new Capacity Manager. The requests will be assessed based on the “highest reservation fee per cubic foot until all available capacity has been allocated”, which some sellers point out makes FBA akin to an ads program where whoever pays the most gets more products stored inside Amazon’s warehouses.
Amazon says it will offset the reservation fees by performance credits that are earned from sales generated using the extra capacity, adding that the performance credits will basically offset 100% of the reservation fee as long as your products sell through.
4. FBA capacity limits in volume to better reflect capacity usage. Amazon will shift to measuring inventory usage by volume, instead of by units, which it says better represents the capacity used by a seller’s products. For sellers who prefer to plan in units, Amazon will continue to show inventory usage in units and will provide an estimate of how many units your capacity limits permit.
Related Reading: The Ultimate Guide to Inventory Management
Potential Impact On Sellers
Shortly after the announcement, some sellers observed potentially getting higher storage limits. One seller reported a potential storage space increase of as much as 70%, while another saw a 4x capacity increase under the new system.
In contrast, a number of sellers are skeptical as to the long-term effects of this new system. For instance, the ability to request for a higher capacity could turn into huge additional costs, as Amazon is almost certainly going to impose lower limits on all sellers and set unreasonable sell-through rates of weeks.
Nevertheless, Amazon claims that these changes will make it easier for sellers to plan how much inventory to procure and manufacture, and will make it easier for them to navigate the storage limits set by the company.