Dive Brief:
- Amazon will introduce a new capacity management system March 1 for third-party sellers using its fulfillment services that features the ability to bid for additional storage space, the company announced Tuesday.
- Sellers can request additional Fulfillment by Amazon inventory capacity based on a reservation fee they determine, according to a blog post from Dharmesh Mehta, vice president of Amazon Worldwide Selling Partner Services. The goal is to give sellers more control over their FBA capacity "while limiting unproductive use.”
- The highest reservation fee per cubic foot offered by a seller is granted first, and fees are offset by "performance credits" from sales tied to the extra capacity, Mehta said. The credits are designed to offset up to 100% of the fee, so the added capacity won't cost sellers as long as their products sell.
Dive Insight:
Maximizing productivity has become even more important for Amazon as it works to reduce billions in added costs, much of which is connected to its warehouse operations. CFO Brian Olsavsky told analysts in October that the company has been operating with "very high" inventory levels primarily connected to Prime sales events, making productivity improvements more challenging.
"There's a lot of extra work when you have space constraints," Olsavsky said.
Since the new reservation feature is auction-based, the cost of additional capacity will likely vary based on the time of year, said Kiri Masters, head of retail marketplace strategy at Acadia, in a LinkedIn post. It will benefit brands who need more inventory space to support new product launches or marketing campaigns, she added.
"This has not been possible in the past," Masters said. "Many brands would be willing to pay to guarantee space for such events, and now they have the opportunity."
The new capacity management system will also provide sellers a monthly capacity limit for how much they can send to and store at Amazon, according to Mehta. This replaces the weekly restock limit and quarterly storage limit, which sellers have said can make it difficult to plan how much inventory to procure and manufacture.
"Like restock limits today, capacity limits consider inventory on-hand in Amazon’s fulfillment centers and shipments sellers have created that have not yet arrived," Mehta said.
