Amazon’s inventory performance index (IPI) is used to measure inventory health, monitoring excess and low inventory levels for all of your SKUs.
The IPI is important as it affects whether you are eligible for unlimited storage space or if your storage space will be capped. The IPI is updated on a weekly basis and if your score is below 350 at the end of the quarter your storage space will be capped for the next three months. Maintaining a healthy IPI is therefore very important to ensure that your ability to send units to Amazon is not compromised. The good news is that if your IPI is above 350 six weeks into the quarter, your storage space will be unlimited for the next 18 weeks.
There are three metrics that determine your IPI score. First, we will talk about the most important:
Sell-through
Sell-through is calculated based on the number of units you sell in comparison to the number of units you hold in stock. Ideally, you should hold no more than 9 weeks of stock per SKU. We have determined that a sell-through of at least 2 will hugely increase your chances of maintaining an IPI score of above 350.
Excess inventory percentage
The second most important metric is the “excess inventory percentage”. Any units that have been in stock for over 90 days will negatively affect the “excess inventory percentage”.
Stranded inventory percentage
The next metric to take into account is the “Stranded inventory percentage”. Stranded inventory are units that are in stock but unavailable for sale. Stock that is held at Amazon’s warehouse but unable to purchase will waste valuable space so need to be addressed.
FBA in-stock rate
The least important metric is the “FBA in-stock rate”. This metric calculates how efficiently you keep lines in stock. We have determined that this metric has no effect on the IPI score, however, it is a useful tool to use to determine SKUs which may need replenishing soon to avoid going out of stock.
My IPI is below 350, what should I do?
The most important factor within the IPI metric is sell-through. Ensure that your SKUs are not held at Amazon for more than 90 days. There are a variety of things you can do to improve the sell-through of an item such as lowering the price, using Amazon PPC ads or improving the images and description of your listing to make it more appealing to customers. In most cases, if you maintain a Sell-through percentage of more than 2 for three months, your IPI score will remain above 350 giving you unlimited storage space.
The next thing to check is your excess inventory. Remove any items that have been in stock for more than 90 days or any stock that is likely to remain unsold for more than 90 days.
Finally, check your stranded inventory. Usually, this can be fixed in one of two ways, either a listing is inactive so you will need to activate the listing or create a removal order for the affected units.
I have done all of the above but my IPI score has not changed.
We have determined that Amazon take snapshots of your IPI score over time and quite often it will take weeks for changes you have made to take effect. The IPI is calculated as a rolling average, so you will need to maintain a sell-through of at least 2 for a sustained period of time to see your IPI score begin to change.
I purchased large quantities from my supplier and cannot sell out within 90 days, what should I do?
If you purchase products in bulk and usually send all items to FBA and store them for over 90 days then you will need to change your logistical plan. The best option is to use an FBA prep centre to store your goods and then ship no more than 90 days’ worth of units to Amazon as and when required. Whilst this may take more time as you will need to keep an eye on inventory levels and replenish more often, quite often FBA prep storage fees are much lower than FBA storage fees.
In summary
Whilst the IPI may seem a headache at first it is actually a great benefit to sellers. By maintaining an IPI of above 350 you will have more awareness of lines that are slow selling and reduce your storage fees in the process. In addition, the IPI score replaces the dreaded long-term storage fees so there are no more potentially huge bills for excess stock at the end of each quarter.