What is IPI?
The Inventory Performance Index, or IPI, is a metric to gauge inventory performance over time in Amazon Seller Central. IPI score is formulated based on four key factors that determine the inventory health on Seller Central. These factors gauge the performance of inventory both from short term and long-term perspective, thereby providing a holistic approach to inventory management.
The IPI doesn’t account for seasonality, and it factors in unexpected disruptions to set a minimum benchmark, thus allowing long-term inventory performance to serve as the benchmark in decision making and prevent IPI score from anomalies.
What are IPI influencers?
If you are a new Seller, you will get 1000 units of Fulfilled by Amazon (FBA) Storage in each of the buckets such as Standard, Oversize, Apparel, and Footwear. It is then evaluated on a weekly basis on the 4 parameters mentioned below. Any significant spikes during the week can help you gain additional inventory space. If you are switching from Fulfilled by Merchant (FBM) to Fulfilled by Amazon (FBA), make sure you target your top items based on your sell-through rate.
IPI is calculated based on 4 different factors which are the key influencers to drive your inventory performance and additional Inventory storage.
A. Excess Inventory Percentage: Any inventory which has over 90 days of supply based on forecasted demand is known as excess inventory. Excess inventory percentage is the percentage of SKUs identified as excess out of the present inventory.
B. Stranded Inventory Percentage: When inventory is not available for purchase due to any issues such as Restricted ASIN, Inventory error, Compliance Issues, or because of some issues the listing would have fallen off. These issues result in lost sales and storage costs. Stranded inventory percentage is measured by the percentage of your FBA inventory units that are currently not available for purchase on Amazon.
C. FBA Sell-through Rate: FBA sell-through rate is the number of units sold and delivered over the past 90 days divided by the average number of sellable units in fulfillment centers during that time. This metric is the most important metric of all as a higher sell-through rate will result in higher inventory limits.
D. FBA In-stock Rate: Percentage of time the replenishable FBA products have been in stock for the last 30 days, weighted by the number of units sold in the last 60 days is FBA in-stock rate. This metric shares how many fast-moving SKUs are currently available in inventory. Lower FBA in-stock rate is detrimental to the business as it signifies popular products being OOS which causes opportunity loss for sales.
How can IPI Score impact your account performance?
IPI score impacts your business on Amazon on two key metrics, one is your Restock Limits, and the other is your FBA Storage Fee. A good IPI score is measured to be greater than 400 (from 2022). The 4 key factors for IPI score captures the high functioning inventory, meaning, the best SKUs at the right quantity, at the right availability, and the right catalog inputs complying with Amazon guidelines. The whole metric is geared to highlight, what’s selling and what’s not selling on Amazon. A careful check maintained on IPI regularly driving corrective actions promptly can help you remove selling bottlenecks and thereby increase sales on Amazon.
How to Improve IPI?
There are four categories of recommendations to help improve an IPI score:
· Improve 90-day rolling sell-through by maintaining a sell-through that places this metric in the green (or “good”) range year-round. This can be achieved by setting up a weekly rigor in identifying sell-through for the trailing 90 days and then capturing the weekly average units sold per SKU. This can effectively identify how long the present inventory in FBA will last as per the current average weekly sales numbers which should serve as guidance for forecasting FBA replenishment numbers. A lower sell-through rate for your Seller Central account signifies that item in inventory are not selling out fast enough.
· Reduce excess inventory. Keep monitoring excess inventory units and SKUs regularly to identify opportunities for selling these SKUs through discount sales/promotions/coupons to free up inventory space which should be filled by fast-moving items. If an excess inventory is not selling through different promotional options, then as a last option you might choose to remove this inventory from the Amazon FCs by creating removal orders.
· Fix your listing problems promptly and check Stranded inventory. Stranded inventory means you have sellable products in Amazon FCs that don’t have an active listing and therefore can't be sold to customers. Issues here mostly pertain to catalog content due to products missing key information requirements, inventory errors were based on customer review inventory is blocked for further sales, policy violations, etc.
· Improve FBA In-stock Rate: As FBA in-stock rate signifies, whether top-selling products are in-stock in Amazon FCs, thus the higher this metric, the better is the health of present inventory. This is again a key factor that should be kept in mind while creating FBA replenishment for SKUs.