As of the beginning of this month, Amazon has become to enforce inventory management policies for third-party sellers, which will have implications as to how these sellers manage their overall inventories.

Amazon has grown its Fulfilled by Amazon retailer hosting program so much that reportedly, more than half of products sold now come from third-party retailers. Early-on, Amazon did not charge high inventory storage fees in order to drive high growth for the FBA program. That has led to a huge growth in Amazon warehouse space needs, and now the online retailer needs to clamp-down on sellers who are not actively managing hosted inventory.

Amazon’s Inventory Performance Index (IPI) , introduced last year, calculates how each hosted seller manages inventory turnover. It can penalize merchants with added storage fees if they exceed monthly inventory limits, or not removing or clearing-out products not selling. A calculated IPI score of 350 is the determinant of added fees. Below that number, hosted merchants are able to send additional inventory to designated Amazon warehouses. Those with a score higher that 350 trigger added storage charges or a cap on additional Amazon storage.

According to a published report from global business network CNBC, merchants with products that have high seasonality factors are being hurt because thus far, the IPI has not been able to factor seasonality sell factors, and thus yields a score above 350. That issue supposedly is going to be addressed in a longer-term approach.

Implications

As many various sized suppliers and merchants are likely aware, online and brick and mortar retailers clamping down on inventory efficiency have become a common occurrence, beyond just Amazon. Global retailer Walmart has instituted such programs as has other major retailers such as Target. The timing of Amazon’s latest clamp-down is no coincidence, since activity related to the all-important holiday surge fulfillment period is but four months away.

The important implications for suppliers and merchants, regardless of business size, is the need for a rather comprehensive inventory management system that can manage across multiple fulfillment channels, and multiple tiers of their supply networks. This is indeed an Omni-channel fulfillment world where inventory must be managed on a daily and weekly basis. That cannot effectively be managed with personal spreadsheets, or without B2B Business Network portal linkages and electronic messaging.

 

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