Late last year, Amazon announced the launch of a new Minimum Inventory Level metric for FBA sellers. The metric will help sellers keep sufficient inventory on hand and avoid the upcoming low inventory level fee scheduled to go into effect on April 1, 2024.
Amazon also introduced a new inbound placement service fee to help cover the cost of distributing sellers’ inventory to regional facilities, as well as a new inbound defect fee for shipments that don’t arrive when or where they’re supposed to.
These changes come in the wake of a broader push by Amazon to shift to a more regionalized fulfillment model and are part of a growing list of other fee changes and guidelines due to be introduced this year.
So what does this mean for sellers? Read on to learn more about the Amazon Minimum Inventory Level and how it could impact your business.
What Is the Minimum Inventory Level?
The Amazon Minimum Inventory Level is an inventory metric that tells sellers the minimum number of units per product to have on hand in Amazon fulfillment centers. Sellers whose inventory levels dip below the minimum will be subject to Amazon’s low inventory level fee.
To determine your Minimum Inventory Level, Amazon uses a machine learning algorithm to analyze forecasted demand and replenishment settings for each of your SKUs. It then uses this forecast to generate a recommendation for how much inventory you should hold in stock at any given time.
Amazon says the metric will help sellers meet customer demand and offer faster delivery, since meeting minimum inventory levels means it can hold stock closer to customers at local fulfillment centers. According to Amazon, this is important because insufficient stock makes it harder to distribute products to fulfillment centers and increases collective transportation costs for Amazon and its sellers.
To view your Minimum Inventory Level, go to your FBA Inventory page. You’ll see this metric listed alongside your historical days of supply and Inventory Performance Index (IPI) score.
How Does the Amazon Low Inventory Level Fee Work?
The Amazon low level inventory fee is applied to products whose inventory levels fall short of historical demand. Amazon measures these inventory levels in terms of “historical days of supply,” or how many days remain before all on-hand stock of a given SKU will sell out.
Amazon calculates historical days of supply by dividing the average daily inventory units on hand by the average daily shipped units:
Historical Days of Supply = Average Daily Inventory Units on Hand ÷ Average Daily Shipped Units
Amazon calculates two types of historical days of supply: short-term and long-term. Short-term historical days of supply measures demand for a given product over the last 30 days. Long-term historical days of supply measures demand for that same product over the last 90 days.
In order for Amazon to apply the low level inventory fee, both long- and short-term historical days of supply must fall below 28 days or 4 weeks.
The minimum inventory level is designed to help sellers avoid this danger zone when used in conjunction with other inventory tools including FBA capacity limits, IPI score, and restock recommendations.
Once an item falls below this threshold, a fee is calculated based on each item’s size, weight, and either long- or short- historical days of supply, depending on which number is greater.
The fees are per item and are calculated as follows:
| Size Tier | Shipping Weight | Historical Days of Supply 0-13 | Historical Days of Supply 14-20 | Historical Days of Supply 21-27 |
|---|---|---|---|---|
| Small Standard | Up to 16 oz | $0.89 | $0.63 | $0.32 |
| Large Standard | Up to 3 lb | $0.97 | $0.70 | $0.36 |
| Large Standard | 3+ lb to 20 lb | $1.11 | $0.87 | $0.47 |
Amazon says it won’t apply the low inventory level fee to new professional sellers for their first 365 days. Fees also won’t apply to new-to-FBA parent products for their first 180 days.
According to eComEngine, the low inventory level fee also will not apply to out-of-stock products or those auto-replenished by Amazon Warehousing and Distribution.
What Does the Updated Minimum Inventory Level Mean for Sellers?
As with nearly every move Amazon makes, the reaction from sellers has been mixed.
There are some potentially substantial benefits for those who embrace the new Minimum Inventory Level metric. However, there are also some significant concerns.
Potential Benefits
- Simple: Sellers don’t have to run their own calculations to guess how much stock they’ll need, because Amazon is taking over basic demand forecasting and replenishment calculations for them.
- Profitable: By more consistently meeting demand and increasing your IPI score, you may be able to win more customers. Amazon claims sellers who keep their inventory levels above the minimum for four weeks see an average sales increase of 15%.
- Balanced: Although Amazon is adding this new fee, it’s also reducing monthly storage fees, apparel referral fees, and other fees. When it’s all said and done, some sellers may actually experience lower average fees per unit sold.
Potential Drawbacks
- Expensive: While some sellers will save or make up for the difference in increased profits, others may end up paying more for each sale. Between this and other fees, Amazon expects sellers’ average fees to increase by $0.15 per unit sold.
- Punitive?: Because of the way the fee is structured, the impact may be felt more by private label sellers, wholesalers, and those who test their products with small initial runs.
- Favors Amazon’s Bottom Line: It’s no no secret the new fee changes exist to shift the cost burden onto its sellers.
It’s clearly less expensive for Amazon to fulfill orders when inventory is closer to customers. As with previous fee hikes, you won’t be surprised to see Amazon shifting its seller guidelines to improve its own cost efficiency.
Or, in the words of Scott Needham of SmartScout, Amazon wants you, the seller, “to be part of their optimization.”
Seller Reactions: What Real Sellers Think of Minimum Inventory Level
So, is the new Minimum Inventory Level good or bad? As usual, the answer depends on who you ask.
Some sellers believe the changes are designed to encourage them to rely more on Amazon for their logistics. However, others speculate that the new inventory minimums and associated fees could actually do the opposite. For them, it makes more financial sense to switch to using a 3PL:
“It looks like they are trying very hard to steer sellers to use ‘supply chain by Amazon’ aka their logistics via AGL and their warehouse via AWD,” says Redditor u/silvercorona. “You can see that they will waive a lot of these fees if you use AWD and let them auto replenish for you. Unfortunately their warehouse storage fees are 2x plus what we pay our 3PL and don’t yet have the ability to let you easily sell to certain other channels.”
A number of Amazon sellers are just as concerned with quality as price. They believe the changes unfairly punish the seller for Amazon’s shortcomings. Here’s how Redditor u/Ciderinsider86 see it:
“Every time we run out of inventory. It’s generally because Amazon loses half of what we send them, or it takes them 6 weeks to unload the truck. Glad to hear that I’ll be penalized for this.”
Expert e-commerce YouTuber AskJimmySmith believes the new fee may be designed to penalize sellers who test new products by sending in smaller volumes to see how they perform. Sellers who engage in this practice may find themselves facing higher upfront fees, but the initial investment may still be worth it if you’ve had proven success boosting your Amazon ROI with this approach.
Smith also hypothesizes that future minimum inventory level calculations will be based on the ASIN, not the SKU level. In other words, they’ll be pegged to item popularity, not individual seller performance. The new structure could provide an opportunity for sellers of popular ASINs to compete at higher-than-Buy-Box prices — if they can move inventory faster, they can increase their IPI score and earn a greater competitive advantage.
Recapping the Amazon Minimum Inventory Level
In the broader scheme, the new fees associated with the minimum inventory level may be offset by other important changes at Amazon.
Here are some of the changes Amazon is making to improve the seller experience:
- Decreased FBA fulfillment rates
- Discounted fulfillment for products in the Ships in Product Packaging (SIPP) program
- Reduced on-peak monthly storage fees for standard-size products
- Reduced referral fees for apparel products
- Lower pricing for Amazon Vine
- Expanded US FBA New Selection program benefits
- New rates and benefits for Supply Chain by Amazon
Depending on your niche and e-commerce business model, these discounts and reductions may or may not benefit your business.
After all, nothing is for free. The above changes come with the following fee increases:
- A new inbound placement service fee
- An expanded returns processing fee
- Increased storage utilization surcharge
- Increased removal and disposal fees
- Increased age inventory surcharge
- Increased prep service fees
At the end of the day, there are at least two guaranteed winners: Amazon, who gets to cut its costs while improving its service. And the customer, who gets faster access to more products, no matter what they order or where they’re located.
Grow Intentionally with SellersFi
Like all things e-commerce, the new minimum inventory level could be a burden or an opportunity depending on how you approach it.
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