Amazon has announced a new and improved FBA capacity management system to help sellers manage their Fulfilled by Amazon (FBA) inventory. The new capacity manager is designed to give sellers greater capacity limits, more control, and visibility over their inventory and supply chain. The easiest way to keep sales consistent is by consistently being in stock. Not only will it drive more sales but it will also make it easier to plan your cash flow in the future. Lastly, by managing your inventory correctly you will save money by not overpaying for storage fees. The FBA capacity management system aims to solve an issue that has caused a lot of frustration for Amazon sellers, which is restrictions and lack of clarity around sending in inventory. Amazon customers will benefit from this with more of the products they want in stock and ready to be purchased. The program is set to go into effect on March 1, 2023. In this post we will cover how the limits were previously set, new changes to the FBA limits moving forward to that you can keep your products in stock, and ways to increase restock limits with the new FBA capacity manager system.
How FBA Limits Used To Be Set
A major challenge for Amazon sellers is inventory management and ensuring you have the right amount of inventory at the Amazon fulfillment centers to sell to customers. Too much inventory takes up space for Amazon and creates unwanted costs for sellers. Sending in too little inventory can cause stock-outs and missed sales for sellers and Amazon customers not getting the products they want. The old FBA capacity system would set limits on a weekly basis. This was a challenge for sellers to create production schedules or know how much inventory can be ordered from manufacturers. There were two limit scores both a storage limit based on space and restock limit based on units for sending in inventory. This two-score approach was complicated and did not make sense for all different types of products. These pain points for Amazon sellers are what triggered an overhaul for Amazon to update the FBA capacity management system.
Amazon FBA Capacity Management New Features
Amazon has really listened to Amazon sellers and added some great improvements to the FBA restock capacity system.
Single Month-Long FBA Capacity Limit
Checking two different limits while attempting to have the optimal amount of inventory in stock can be frustrating. One of the key features of the new system is a single, month-long FBA capacity limit. This will make it easier for sellers to plan their inventory by eliminating the need to navigate two different sets of limits (storage limits and restock limits) that are measured differently.
Three-Month Estimated Capacity Limit
The capacity limits for the upcoming month will be announced in the third full week of each month, giving sellers more predictability and control over their inventory. The new system will also provide sellers with estimated capacity limits for the next two months, to help them plan over a longer time horizon. The system will forecast how much space and labor will be available, and these estimates may vary based on how efficiently sellers are using their capacity, as measured by the Inventory Performance Index (IPI) score.
Volume Limits for Capacity
Finally, the new system will set capacity limits and measure sellers' inventory usage in cubic feet, which better represents the capacity sellers' products use in Amazon's fulfillment centers and transportation vehicles. While sellers will still be able to see their inventory usage in units, this change will provide a more accurate representation of capacity usage. Overage fees will apply if a seller's on-hand inventory exceeds their capacity limit, to help prevent excessive inventory levels.
Opportunity to Request a Higher Limit
Sellers will now have a built-in workflow to request additional capacity based on a reservation fee they specify. The goal of this feature is to provide sellers with more control over warehouse space while limiting unused space. Say for example, you know you are going to have a high-spend marketing or advertising campaign and need storage space with more inventory to support the additional traffic, this request tool will be a perfect solution to get the inventory space you need. The next section will dive deeper into the details of how this bidding for storage space will work.
Bidding for Storage Space with Capacity Manager
Here are the details of how bidding for extra FBA storage space will work. Sellers will request additional capacity based on a reservation fee that they specify. Requests are granted objectively, starting with the highest reservation fee per cubic foot until all capacity available under this program has been allocated. When additional capacity is granted, sellers' reservation fees can be recouped using Performance Credits from the sales they generate using the extra space within their fulfillment centers. It is possible for the reservation fee to be 100% paid off due to your products selling through fast enough. Below is an example of how Performance Credits are calculated.
Example 1: Suppose that you receive an initial FBA capacity limit of 500 cubic feet for the US standard-size storage type and you’re approved for an additional 250 cubic feet, for a total limit of 750 cubic feet. This means that one-third of your total US standard-size capacity comes from your request (250/750). Therefore, one-third of your sales of US standard-size ASINs will qualify for performance credits.
Example 2: Now suppose that your total sales for the period for ASINs in that storage type are $210,000, meaning that you have qualified sales of $70,000 [$210,000 x (1/3)]. The performance credit rate is $0.15 for every dollar of qualified sales or 0.15 x $70,000 = $10,500. So you would get a performance credit of $5,250 (or the full amount of your reservation fee, if less than $10,500).
Conclusion
Amazon's new FBA capacity management system is a significant improvement for sellers, providing them with more control and visibility over their inventory and supply chain. This will allow sellers to better plan their inventory so that their products can stay in stock. The new system's features such as a single, month-long FBA capacity limit, estimated capacity limits for the next two months, the opportunity to request a higher limit, and measuring inventory usage in cubic feet will make it easier for sellers to plan, manage and grow their business. This new system is a major step forward for Amazon sellers and is set to go into effect on March 1, 2023. It is important for sellers to familiarize themselves with these changes and how they can optimize their inventory and supply chain to make the most of this new system. If you have any questions about Amazon’s new policies please contact us below.