An Introduction to the Inventory Performance Index
by Becky Trowbridge, on May 23, 2018
FBA sellers have had several questions about this metric, which were addressed by an Amazon representative in this Seller Central forum.
Inventory Management Matters
Managing your inventory effectively can help you reduce costs, increase profitability and continue to grow your business. The IPI measures your inventory management practices over time. A score above 450 means you are performing well, while a score under 350 could mean overage fees and limits being placed on your FBA storage, including not being able to send items into the fulfillment centers. Amazon will begin changing storage limits for sellers with an IPI score below 350 on July 1, 2018. Some restrictions may be applied to sellers who have an IPI score below 350. See the storage limit policy here for more information.
Set Up for Success
Make sure your inventory performance settings reflect your current business goals. If you don’t plan to replenish a SKU, mark it as non-replenishable inventory so it won’t affect your IPI score. (Want to watch a particular SKU or restock a seasonal item as the appropriate season approaches? Use RestockPro’s filters and notes to keep track of those items.)
It’s important to note that paying a higher percentage of your FBA revenue in fees can reduce your IPI score. The goal is to keep a good amount of inventory in stock at FBA and sell it quickly or steadily to avoid long term storage fees, which are now assessed monthly. A RestockPro user shared that his order session percentage has increased after removing several excess items and complete inventory of some SKUs that had zero sell-through. Even with significantly lower “offers” from the sales dashboard, his company’s daily sales have temporarily increased.
In the Seller Central forum, Amazon states, “The best way to increase your IPI score and minimize your FBA storage fees is to reduce unproductive inventory and keep your productive inventory at lean levels while ensuring you have enough on hand to minimize lost sales.” Excess inventory can be reduced by removals (disposal or taking the items back). You could also try running sponsored ads (this will cut into your margins, but could increase sales) or updating older listing with revised titles, keywords and images.
One seller has decided to adjust their company’s RestockPro settings to cut their days of inventory at Amazon or in transit in half. To increase the sell-through rate, the company has focused on higher priced items, determining that there is too much labor involved to manage lower priced or lower profit items with FBA. The company is also converting lower priced items to merchant fulfillment and will discontinue selling many of them after running out of stock. They are also trying to keep two weeks of inventory already prepped and using 8-9 day lead times to help maintain this.
IPI: Inventory Performance Index, a metric that is used to determine how your FBA business is performing over time.
Excess inventory percentage: This number can help you decide whether to lower your prices or remove your products. Reducing the number of excess units in your inventory can increase your IPI score. (Remember, the higher the score, the better.) Continuing to keep excess units in stock could decrease your IPI score.
FBA sell-through rate: Your sell-through rate can increase or decrease your IPI score. Your sales should maintain a good balance with your inventory volumes. In FBA inventory aging on Seller Central, there is a column that shows SKU level sell-through based on the past 90 days. Many sellers are taking advantage of the free removals.
Stranded inventory percentage: This is inventory with listing problems that incurs storage fees without the possibility of sales.
FBA in-stock rate: This number shows how much value you’re getting from your products by keeping replenishable ASINs in stock. It is calculated as the percentage of the past 30 days that a SKU was in stock times 60-day sales velocity (the number of units sold for each SKU over 60 days) divided by 60-day sales velocity.
Keep Track of Your Inventory
RestockPro is a powerful inventory management tool that helps Amazon sellers track inventory profitability, keep profitable items in stock, and avoid duplicate orders or orders with items with excess inventory. Try it free for 21 days!