In April of 2024, Amazon implemented a new fee structure that includes Low-Inventory-Level fees, designed to optimize the efficiency of their fulfillment processes.
In addition to the recently added Inbound Placement Fee, this strategic change aims to encourage sellers on the platform to maintain higher inventory levels, thereby minimizing order delays, enhancing delivery speeds, and ultimately reducing the internal operational costs associated with managing inventory logistics.
By introducing these fees, Amazon seeks to ensure that products are readily available across various fulfillment centers, thus avoiding the need for costly and time-consuming inventory transfers between locations.
This update is crucial for sellers to understand as it directly impacts their cost management and operational strategies on the platform.
What Are Low-Inventory-Level Fees?
In a move to streamline operations and reduce expenses, Amazon introduced Low-Inventory-Level fees that work in conjunction with the existing Inventory Placement Fees.
This initiative targets the inefficiencies caused by low stock levels, which often lead to increased logistical costs and slower order fulfillment. When inventory at fulfillment centers is insufficient, Amazon incurs higher costs moving stock to meet customer orders, which can also delay delivery times.
Why Is This Fee Change Happening?
To counteract this, the new fee structure penalizes sellers whose Historical Days of Supply falls below 28 days, encouraging them to keep their inventory levels robust and responsive to customer demand.
This change not only helps Amazon reduce its internal costs but also improves the customer experience by potentially increasing the speed of deliveries.
What To Know About Historical Days of Supply
The Historical Days of Supply is a critical metric under Amazon’s new fee structure. It represents the number of days a seller's inventory will last at current sales volumes, providing a clear snapshot of inventory health.
Amazon utilizes two specific metrics to assess inventory levels: a 90-day (Long Term) and a 30-day (Short Term) Historical Days of Supply. Fees will be imposed on sellers whose inventory levels dip below 28 days for both metrics. If a seller’s inventory exceeds this 28-day threshold on either the long-term or short-term metric, the additional fees are waived.
This dual-metric system ensures that sellers are not penalized unfairly for temporary dips in inventory and encourages a more stable stock level throughout different sales periods. The measurement is based on Parent ASIN, not individual ASINs, which allows for a broader view of stock levels across product lines.
How To View Historical Days of Supply
On the Amazon FBA Inventory Page, there is now a column for Historical Days of Supply, which shows the value for the Parent ASIN.
Here, you can see that despite the current inventory level showing as “Healthy,” this product will still be assessed the additional Amazon Low-Inventory-Level fee due to the short-term and long-term Historical Days of Supply both being below 28 days. This product will be assessed additional fees until the Short Term level increases above 28 days average.
Here’s another example for a product, currently out of stock, but that would not be assessed the Low-Inventory-Level Fee despite having a low Short Term Historical Days of Supply, because the Long Term level is above 28 days.
Fee Structure
Amazon’s Low-Inventory-Level fee structure is methodically designed to scale according to the size and weight of products, in addition to the Historical Days of Supply. The fees vary from small to large standard-sized products, imposing a financial incentive for sellers to maintain sufficient stock levels.
Specifically, if a product's Historical Days of Supply, evaluated both at 90-day and 30-day intervals, falls below 28 days, the seller incurs additional fees.
This tiered fee structure aims to reflect the varying logistical challenges and costs associated with different product categories. For sellers, understanding this fee system is crucial, as it directly influences pricing strategies and inventory management practices.
Proactively maintaining inventory levels above the specified threshold ensures that fees are waived, thereby optimizing profit margins and enhancing operational efficiency.
How To Best Avoid This Fee
We typically recommend between 45 and 60 days of coverage, and this can best be handled through proper inventory management. This is still our recommendation, though we’d lean more towards the 60 day level, especially if you have delays in acquiring inventory from suppliers or frequently experience delays in shipping or inbounding.
If you currently have products that are below 28 days of Short Term Historical Days of Supply, we’d highly recommend sending in sufficient inventory as soon as possible to start alleviating the issue and remove the additional fees.
How To Manage Your Inventory Levels
Effective inventory management is essential to circumvent Amazon's Low-Inventory-Level fees. Sellers are recommended to aim for a coverage of between 45 and 60 days, especially in scenarios prone to supply chain disruptions, such as delays from suppliers or in the shipping process. By maintaining a buffer of inventory, sellers can avoid the pitfalls of falling below the 28-day threshold.
Practical steps include regular monitoring of inventory metrics via Amazon’s tools, strategic planning around sales forecasts, and prompt replenishment of stock. Sellers should also consider diversifying their inventory sources and exploring automated inventory management systems to maintain consistent supply levels.
These practices help avoid additional fees and contribute to a smoother, more reliable customer service experience.
How To Check Your Metrics on Amazon
To effectively manage and adjust inventory levels, sellers must regularly check their Historical Days of Supply on the Amazon FBA Inventory Page.
This page now features a column specifically for Historical Days of Supply, which displays metrics at the Parent ASIN level, rather than for individual ASINs. This overview allows sellers to assess the health of their entire product line's inventory at a glance.
For instance, even if the current inventory level is marked as “Healthy,” a product may still be subject to the Low-Inventory-Level fee if both the short-term and long-term Historical Days of Supply are below 28 days.
By understanding how to interpret and react to these metrics, sellers can better navigate Amazon's fee structure and optimize their inventory practices to align with the operational demands of the marketplace.
Strategic Advice and Recommendations
Amazon’s new fee structure requires a strategic approach to inventory management. Sellers should prioritize setting up inventory monitoring systems that alert them when levels approach the critical 28-day threshold.
Additionally, adopting just-in-time inventory practices may be risky under the new regime — instead, a just-in-case strategy ensures a buffer that can accommodate unexpected surges in demand or supply chain delays.
Collaboration with supply chain partners to ensure timely restocking, utilizing data analytics for demand forecasting, and considering seasonal variations in sales can all contribute to more effective inventory management.
Sellers are advised to regularly review their inventory performance against both long-term and short-term supply metrics to ensure they are aligned with Amazon's expectations.
Further Resources
For sellers requiring additional assistance or seeking to expand their knowledge on effective inventory management strategies, Amazon Seller Central offers detailed guides and resources. Additionally, embracing an omnichannel approach to business operations can further enhance a seller’s ability to meet customer demands efficiently.
For personalized advice and strategic planning, contacting a specialized agency like GR0 can provide tailored solutions that integrate seamlessly with broader business objectives, helping sellers not only to meet Amazon's standards but to excel in a competitive marketplace.
Try the Omnichannel Approach
Understanding and adapting to Amazon's Low-Inventory-Level fees is crucial for sellers seeking to optimize their operations and maintain profitability on the platform. By encouraging sellers to maintain higher inventory levels, Amazon aims to enhance the overall efficiency of its fulfillment network.
Staying up-to-date on changes that platforms like Amazon, social media, Google Ads, and email and SMS marketing make is essential for your business to thrive.
For more information on implementing an omnichannel approach into your business model, reach out to us at GR0 to find ways that we can help you improve your overall reach and surpass your business goals.
Sources:
Update: Credit For FBA Low-Inventory-Level Fees Incurred During April 2024 | Seller Central
2024 Amazon Seller Fees: 5 Changes You Need To Know | Lab 916
