Selling on Amazon through Fulfilled by Amazon (FBA) has its perks, such as Prime eligibility for fast shipping. But sellers have long struggled with unclear shipping policies and inventory restrictions that make cash flow planning challenging.
Enter Amazon's new FBA Capacity Management System, which launched on March 1st.
The streamlined system gives sellers greater capacity limits, more control, and visibility over their inventory and supply chain. This helps strike the right balance between avoiding stockouts and paying excessive storage fees.
The new system will benefit both sellers and consumers by ensuring more products are in stock and ready to purchase.
Here’s a quick breakdown of the new system that just launched:
What Problem Does Amazon’s New FBA System Solve?
Managing Amazon FBA inventory can be a real headache for sellers. They need to make sure they have enough goods at the fulfillment center to ship to customers, but not so much that they incur storage fees. To make things more complicated, Amazon sets capacity limits weekly, with separate limits for storage and restocking.
During busy periods like the holidays, keeping popular items in stock can be a real challenge.
Amazon heard sellers' complaints and responded with a new and improved FBA Capacity Management System. This system simplifies the old two-score approach, making it easier for sellers to manage their inventory and avoid stock-outs or excessive storage fees.
What Changes Will Happen as a Result?
As of March 1st:
Single Month-Long FBA Capacity Limit
Amazon will assign sellers a single, month-long FBA capacity limit based on their Inventory Performance Index (IPI), which considers their track record in moving goods, sales forecasts, shipment lead time, and fulfillment center capacity. This simplifies inventory planning, eliminating the need to navigate different sets of boundaries for storage and restock limits.
Three-Month Estimated Capacity Limit
Sellers get more control and predictability with capacity limits announced every month, including estimates for the next two months. The system will also forecast space and labor availability based on how efficiently sellers use their capacity.
Volume Limits for Capacity
The new FBA capacity management system measures inventory usage in cubic feet instead of units for accurate space usage representation. Overage fees apply if inventory exceeds the capacity limit to prevent excessive inventory levels.
Opportunity to Request a Higher Limit
Sellers can request extra capacity by paying a reservation fee to control warehouse space, limiting unused space. This is helpful for high-spend marketing or advertising campaigns that require additional storage space.
Bidding for Storage Space with Capacity Manager
Sellers have the option to bid for additional capacity by specifying a reservation fee. The higher the fee per cubic foot, the greater their chances of being allocated more space, up to 20% of the already-allotted space or 2000 cubic feet.
All capacity available under this program will be allocated objectively.
Additionally, Amazon clarifies that sellers can regain their reservation fees, up to 100%, by utilizing Performance Credits earned from the sales generated through the extra space in their fulfillment centers.
How to Estimate Performance Credits Under FBA Capacity Management
If a seller is approved for additional FBA capacity beyond their initial limit, a portion of their sales will qualify for performance credits based on the amount of extra space they requested. For example, if a seller's total limit is 3600 cubic feet and they’ve requested 600 cubic feet, one-sixth of their sales of ASINs will qualify for performance credits.
If the seller's qualified sales of ASINs for the period is $70,000, they will receive a performance credit rate of $0.15 for every dollar of qualified sales, which is equal to $10,500. If the reservation fee is less than $10,500, it will be fully offset by this credit.
Key Takeaway from Amazon’s New FBA Capacity Management System
Amazon's updated FBA capacity management system aims to solve common issues that sellers face in managing their inventory and supply chain.
By offering more control and visibility, sellers can plan their inventory better and ensure their products are always in stock.
The new system offers several features such as a single, month-long FBA capacity limit, estimated capacity limits for the next two months, the option to request a higher limit, and measuring inventory usage in cubic feet, making it easier for sellers to manage and expand their business.
Important Fine Print to Consider
Sellers with large unit dimensions —like household furniture or appliances—will likely face increased storage costs. The efficient use of the new system depends on:
- How much will you pay to reserve space?
- How much will shipping and stocking costs through Amazon's fulfillment centers?
- Fulfillment fee and how it may increase with more shipments.
- Sales velocity of ASINs in the new additional space.
- Impact of 'Buy with Prime' rollout on fulfillment space.
- What would prevent Amazon from stocking the high-sales-velocity ASINs in the old, parent space (no performance credits) vs. in the newly rented additional space (with performance credits)?
- Do sellers have control over which ASINs ($ value, margin, velocity) get stored in the “Old” vs “New” fulfillment space?
Selling through FBA on Amazon can be complicated, but with Amazon's new FBA Capacity Management System, it's easier for sellers to manage inventory and avoid stockouts or excessive storage fees.
However, it's important to consider the additional costs for larger items, as efficient use of the new system depends on several factors. Pacvue, as a partner, can help manage commerce operations and optimize campaigns for success on Amazon.
