Amazon is driven by the goal of being the most customer-centric organization on the planet. To achieve this, they offer thousands of goods to be delivered within a two-day window—and, their delivery promise is reliable. However, they did not implement a world-class supply chain strategy overnight. According to Jeff Bezos, CEO of Amazon, they have “invested over $150 billion worldwide in fulfillment networks, transportation capabilities, and technology infrastructure, including AWS data centers” since 2011.
In April 2018, Amazon increased its storage and fulfillment fees for FBA sellers. By changing the cost of FBA storage and fulfillment services, Amazon is incentivizing sellers to improve their supply chain practices so service levels don’t get impacted as volume scales at peak periods. Amazon achieves this by keeping its own inventory levels as low as possible, which forces sellers to replenish stock more frequently.
In a perfect world, every Amazon seller would simply adjust and improve their supply chain operations so they can ship inventory to Amazon facilities when stock levels are low. Unfortunately, cost-effective inventory management practices are not easily perfected and most sellers don’t have $150 billion dollars to invest.
The impact to FBA sellers
For many retailers and brands, Amazon offers a compelling solution: sell through its marketplace, access its fulfillment network, and reach customers with fast, affordable, and reliable delivery. If you can maintain your inventory levels, Amazon FBA services handle a lot of the headaches associated with last-mile delivery.
However, by increasing the fee sellers pay for FBA storage, many FBA sellers are now faced with the prospect of fine-tuning their own supply chain operations to protect their already thin profit margins.
An increase in the price of storage means many FBA sellers can no longer rely on Amazon as a storage facility for their goods, and the alternative is to find another solution. In finding another solution they are opening themselves up to the challenges associated with traditional supply chain planning. For many sellers this might not be an area where they have the required expertise.
Assistance from Amazon
To prepare sellers for the level of efficiency that is now expected of them, Amazon recently added an Inventory Performance Index in SellerCentral (Amazon’s seller portal for marketplace sellers) to help sellers understand Amazon’s view of inventory performance metrics. The index is made up of four key metrics:
- Excess Inventory – Considers where your profitability may be impacted by slow-moving SKUs
- Sell-Through – Ratio between your units sold and how much inventory you hold on average
- Stranded Inventory – Provides information on products that aren’t selling because of a listing issue
- In-Stock Rate – Percentage of time your goods have been in stock the last 30 days (highlights high-selling SKUs in past 60 days)
As a seller, performance in each of these areas amounts to an aggregate score between 0-1000. Scores under 350 are impacted by a new fee structure for FBA storage that results in an increase in costs, or limits the amount of inventory you can have in an FBA facility. When it comes to profitable selling on Amazon, efficient inventory management is king.
The shift in strategy here, particularly for sellers who rely on Amazon for the majority of sales, is to create a more dynamic network for storing and replenishing goods into Amazon when inventory levels are low.
Amazon requires sellers to supply smaller shipments of products at a higher frequency to optimize the movement of goods throughout the Amazon network. For sellers who have never even thought about more frequent replenishment with less volume this presents a problem. Fortunately, we have a solution.
The FLEXE FBA Distribution Program
FLEXE FBA Distribution offers FBA sellers a solution for saving on storage costs and managing more frequent replenishment shipments to Amazon. We have more than 900 warehouses in the FLEXE network. FBA sellers can add an on-demand FLEXE facility to store the bulk of inventory throughout the year—resulting in a staggering 40-80% in storage savings.
By positioning your inventory in a FLEXE facility that is near your target Amazon replenishment facility, you can reduce the delivery time for replenishment shipments into that facility, optimize for ground transportation, and save on overall transportation costs.
With FLEXE, you can:
- Get fast access to warehouses across North America
- Use the same logistics technology platform to manage inventory across your network
- Maintain inventory levels in the Amazon network more easily
- Lower the cost of storage
If we just compare storage fees, the savings are clear:
Amazon storage rates increase 300+% in Q4. FLEXE rates do not. On storage, alone, FBA sellers can see significant savings.
See for yourself with our FBA Calculator. Get access to a report that outlines cost-saving scenarios throughout five major U.S. markets and read through an example scenario that reduces transportation costs by 50%.
If you’re an FBA seller, you need a better solution to maintain profit margins. See how FLEXE can help with the FLEXE FBA Distribution program. Have questions? Get in touch here.