Amazon is rolling out a new system to manage the inventory of third-party merchants. Dubbed Inventory Performance Index, the solution aims to compel sellers to more efficiently use their allotted spaces in Amazon's warehouses.
As reported by CNBC, Amazon is launching the new system in an effort to reduce the clutter in its warehouses. According to the eCommerce giant, this is the “first step in setting a bar” on inventory performance. The new index will measure how the merchant manages inventory, gets rid of products that aren't selling well and adjusts its listings to reflect any changes.
As of Sunday (July 1), inventory that remains in an Amazon warehouse for an extended period of time will negatively impact the merchant's Inventory Performance Index (IPI) score, which will range from 0 to 1,000. Those merchants who have IPI scores of under 350 won't be allowed to house more products at Amazon's warehouses, and will be hit with an overage fee on the inventory that surpasses their particular storage limits. Sellers with scores of higher than 350 won't face any restrictions. Sellers' scores are assessed each quarter, and can change based on the merchants' actions.
Plans for the Index were announced in late 2017, with plans to roll it out after June 30. Amazon is trying to interject more automation into the delivery process and is looking for ways to lower costs, while continuing to add more sellers and build more warehouses.
According to CNBC, last year's fulfillment costs represented Amazon's largest operating expense, increasing by 43 percent to $25.2 billion as total sales increased by 31 percent. "As we continue to grow and support more sellers that desire to make their products Prime-eligible, we introduced changes that will help sellers manage their inventory and help us more efficiently receive inventory and deliver products to customers," Amazon said in an emailed statement.