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Step-By-Step Inventory Performance Index Guide

Amazon

Good inventory management skills bring in lower loading fees and inventory costs, as well as improve overall cost-effectiveness, and efficiency.


Amazon has a metric to help sellers measure their inventory performance - The Inventory Performance Indication (IPI). IPI is designed to assist sellers in fully recognizing the health of their inventory.


In this blog post, we will talk about what IPI is, how to measure IPI, and why all this is relevant for your Amazon business.


What is the IPI (Inventory Performance Indication) Score?


In short, the IPI score is serving to process how effective (and/or creative) sellers are with managing their FBA inventory. The Inventory Performance Indication score ranges between 0 and 1,000. Of course, the higher one’s score is, the better.


Here’s what Amazon said about it:


“The Inventory Performance dashboard helps you identify opportunities to grow your sales, reduce costs, and track key performance metrics.”


IPI is displayed in the inventory dashboard in Seller Central. At the time of writing, however, there is a pre-set bottom line of 450 IPIS that sellers must meet. Having felt below that threshold, Amazon will limit the account's storage limits as they will need to increase their inventory health.


At the end of each quarter, Amazon will analyze one’s IPI and will notify them so that they have the opportunity to increase their score before any limitations are implied.


In case you are scoring higher than the threshold of 450, your IPIS is considered to be in compliance, thus qualifying for the benefits - unlimited storage space for each type (e.g., aerosol, flammable, footwear, apparel, oversize, etc…).


How to view IPI in Seller Central?


First, one must make sure that they have an active Seller Central account in order to access their IPI Score. Then, navigate to your Inventory Dashboard in Seller Central.


After selecting Inventory → Inventory Planning, you can click on the Performance tab to view your IPI score.


On there, Amazon has given sellers a few ways of going about increasing the IPI score. They’ve provided suggestions and insights on:

  • Optimizing holding, storage, and carrying costs.
  • Improving in-stock rate.
  • Ensuring availability of product listings.


It’s important to note that one’s IPI score is updated every Monday and it is basing on 3 months of performance stats.


How does Amazon Calculate IPI?


Although the algorithm that makes the IPI scores calculation remains a secret, when asked, Amazon responded with this:


“The calculation is proprietary and will not be published, just as we do not publish the Buy Box algorithm.”


However, Amazon has mentioned the factors that affect the IPI score. What we do know is that IPI points are not being deducted for running out of stock. On the other hand, stranded inventory may impact someone’s IPI score. There are a few proven ways sellers can mitigate this issue:

  • One would be to reduce excess stock at Amazon’s warehouses
  • The other is to improve your sell-through rate.


If we put this in Amazon words, it would sound something like this:


“The best way to increase your IPI score and minimize your FBA storage fees is to reduce unproductive inventory and keep your product inventory at lean levels while ensuring you have enough on hand to minimize lost sales.”


To understand how to improve the IPI Score, sellers must first go through the factors that affect the inventory performance.

Here are four we are currently aware of:


Excess inventory

Excess inventory % provides you insights into your excess stock unit proportion - excess units times 100 divided by total units. It is also one of the biggest aspects that influence IPI. Amazon prefers being the fulfillment center and not the storage space facilitator. Therefore, it prioritizes moving inventory from warehouses to customers’ doorsteps.


An item is declared “excess" or "overstock” when the proportion of FBA inventor units exceeds a 90-days supply, depending on demand predictions.


A way to prevent overstocking is to maintain an inventory of ~30 to 60 days’ worth of supply. Amazon’s inventory dashboard provides sellers with actionable product demand and restocking insights.


Stranded inventory


Stranded inventory percentage refers to the number of units that are not actively listed on Amazon, this further leads to excess storage costs - inactive listing units times 100 divided by total units.


It also means that customers will not be able to buy a given item, resulting in higher storage fees and missed sales.


However, Amazon has provided sellers with a detailed overview of their stranded inventory, as well as recommendations on how to fix it.


When selecting “fix listings”, Amazon will navigate sellers to the “fix stranded inventory” page where they can see all their stranded inventories and decide on whether they would like to relist them or not.


FBA Sell-Through Rate


FBA sell-through rate refers to the number of units sold that are in stock - units sold/shipped over 90 days divided by the total units in stock available over the past 90 days.


Similar to stranded inventory, Amazon has given sellers an “FBA Inventory” page, where they can see ways of improving their sell-through rate, as well as ways of reducing long-term storage costs.


In-Stock Inventory


FBA in-stock rate indicates how well you manage your in-stock replenishable items. However, amazon monitors performance based on how effectively sellers stock popular ASINs. Although this particular factor won’t have a negative effect on your IPI score, it can surely help with improving it.


4 Proven Ways to Improve your Inventory Performance Indication Score


As we already reviewed popular factors that influence a seller’s IPI score, you should probably have a few ideas on how to run up your scores. Here are a few tips we laid out for improving one's inventory performance:


1. Sell-Through Rates Optimization


As we already mentioned, Amazon sellers must maintain a 90-day sell-through rate. Remaining under 90 days will give you a headstart that translates into a green-colored IPI graph.


However, a more advanced tip would be to use sponsored ad campaigns, enhance your listing strategy and thus improve sell-through rates. One can also focus on improving keyword targeting and conducting detailed product research in order to find the most profitable products to resemble their listing categories.


2. Excess Inventory Removal


In case you are still in hold of items that are no longer in demand or profitable, we suggest you take these away. Sellers can do that in the “Manage Inventory Page”. In the inventory dashboard, there are recommendations on how to manage excess inventories.


3. Long-Term Storage Avoidance


Within 365 days of sitting in a fulfillment center, any inventory that’s approaching this threshold should be removed to avoid long-term storage fees. Sellers can either do so by making a removal order or by allowing Amazon to simply get rid of the inventory.


4. Proper Management of Listing Issues


It’s always a good time to be proactive with your listings. In case one has listing problems that tackle their sales (e.g., stranded inventory), one could do the following to mitigate the impact of these issues:

  • Prioritize popular items (between 30-60 days of supply period)
  • Reduce excess inventory (over 90-days of supply timeframe)
  • Optimize inventory levels
  • Frequently monitor their stranded inventory percentage
  • Frequently track their inventory dashboard


Together with our partners from Greenwald Brands, we’ve developed their own automized action-driven suggestions. In order to do that, they have personally chosen the data points they want us to connect their software tools with. This way, after integrating over 30 data points and implementing tailor-made algorithms, they now receive accurate automized suggestions for all of their listings.


You can learn more about the project here or contact us for our full portfolio.


Falling below Amazon Inventory Performance Index Threshold


In case a seller’s IPI Score drops below the minimum of 450, their inventories will now be subject to storage limits. New restock limits are to be found by navigating to “Inventory performance” → “Manage FBA shipments”.


However, if your IPI is below 350, 6 weeks before or during the end of the quarter, you will be restricted from stocking more inventory and Amazon will impose a fine on any excess units in your inventory.


Conclusion


Well, if you are doing a good job of optimizing your inventory levels, then nothing will hold you back from yielding higher profit margins. It costs a good amount of time and experience to deeply understand the number of units one must restock.


Keep in mind that the penalties for falling below the 450 IPI threshold may be severe and may incur hefty storage fees.


In short, it is crucial to frequently review your IPI dashboard, and always a good idea to follow Amazon’s actionable insights on handling your business properly.


A serious part of the processes for maintaining a successful seller has been implemented in our custom-crafted solutions and used by a vast amount of Amazon Sellers across the globe.


We are experts in keeping you in stock and optimizing your workflow. In case you are interested in the possibilities of Amazon custom software tools, don’t hesitate to get in touch.

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