Ultimate Seller Guide to Amazon Inventory Performance Index

1. What is Amazon Inventory Performance or IPI Index?

Seller Guide to Amazon Inventory Performance Index

Amazon inventory performance index is a measure of inventory health, and it is rated as a number between 0-1000. It captures low and excess inventory levels for your stock-keeping unit (SKU). Amazon's Inventory Performance Index is the first step in setting a standard on inventory performance.

The Amazon Inventory Performance Index (IPI) was rolled out to enable sellers to monitor their Amazon inventory effectively. The IPI measures your Amazon inventory's health, and Inventory health refers to having few or enough units of items or products that a seller has in stock on Amazon. Amazon IPI is simply a way of ensuring Amazon stock performance and Amazon Inventory Management. For sellers, having too few stock units results in the seller running out-of-stock quickly and eventually sales loss. Conversely, excessive stock on inventory results in increase storage costs and excess holding.

Amazon's IPI is meant to benefit both parties (sellers and Amazon). An optimized inventory reduces loss in sales and the cost of holding inventory for sellers. This will also help Amazon by guaranteeing that sellers are stocking its warehouses with the proper products in appropriate quantities, ensuring that Amazon's large warehouse network is increasingly utilized.

Amazon IPI score above 500 (previously 350 and 400) indicates that your business is excelling and properly stocked. In contrast, an IPI score below 450 shows problems, and action is taken to improve the score.

Amazon intends to limit storage access for sellers with an Inventory Performance Index below the minimum requirement. Sellers maintaining an IPI score of 500 or greater will have unlimited storage for items and products.

2. Inventory performance dashboards on Amazon

The IPI dashboard helps you identify opportunities to grow your sales, reduce costs, and track key performance metrics.

The IPI dashboard displays a performance bar for each of the four categories:

Seller Guide to Amazon Inventory Performance Index
  • Excellent (dark green)
  • Good (light green)
  • Fair (yellow)
  • Poor (red)

3. Top factors that influence Amazon Inventory Performance score

The Inventory Performance Index, or IPI, is a measurement standard used to gauge your Amazon inventory performance period.

The IPI score measures your efficiency and productivity in managing your fulfillment by Amazon (FBA) inventory. Several factors influence your IPI score, and the top-most ones are based on your actions:

 1) inventory levels should be balanced between sold and available inventory and avoid the excess stock, i.e., ensure proper Amazon inventory management.

 2) ensure you are not paying long-term storage fees due to overstocking or poor sales, i.e., ensure good Amazon stock performance.

 3) solve all associated listing problems

 4) ensure good Amazon Inventory Performance by keeping your most in-demand products in stock at sufficient levels.

4. Factors that influence your IPI

Excess inventory percentage

An item is considered overstock if it has more than a 90-day supply based on the predicted demand. Properly track your overstock inventory percentage, which is the percentage of your excess FBA inventory units.

Three related measurement standards of interest are shown with the excess inventory percentage on the Amazon Inventory Performance Dashboard Inclusive of the performance bar:

  • Excess units are the number of units that cost you more doing nothing and paying storage fees instead of reducing the price or removing inventory. This value is based on the product demand and costs (inclusive of fees and cost of goods).
  • Estimated gross storage cost is the value of estimated costs you would incur by taking no action and allowing your inventory to remain idle in the fulfillment center for above three years. This is inclusive of monthly storage fees and long-term storage fees.
  • The Reduce excess inventory button shows how many stock-keeping units (SKUs) are available with excess inventory. By clicking the button, you view the manage excess inventory page and take appropriate action on the inventory.

Stranded inventory percentage

When the stock is not available for purchase due to a listing problem, it will lose sales and increase storage costs. This stock is referred to as stranded inventory. Stranded inventory percentage is calculated by the percentage of your FBA inventory units that are unavailable for purchase on Amazon.

Two other related measurement standards of interest are displayed with the Stranded inventory percentage along with the performance index on the Inventory Performance dashboard:

  • Total units count in a fulfillment center without an active listing are counted as stranded units.
  • SKUs with units in a fulfillment center but are not currently on an active listing can be shown by clicking the fix listings button on your performance dashboard. You can visit the Fix stranded inventory page.

FBA sell-through rate

With your 90-day rolling FBA sell-through rate, you can maintain the right balance of inventory. The FBA sell-through rate is the total number of your units sold and shipped over the previous 90 days divided by the number of units available in fulfillment centers during that period.

Two related metrics are shown with your FBA sell-through rate on the Inventory Performance dashboard:

  • Units sold (over the previous 90 days) are the total FBA units sold and shipped over the previous 90 days in view.
  • The Improve sell-through button displays the amount of Amazon Standard Identification Number (ASINs) with an opportunity to improve sell-through. 

FBA in-stock rate

Having replenishable, in-demand items in stock helps to maximize and increase sales. Tracking your performance in this area can be done using the Fulfillment by Amazon (FBA) in-stock rate. It is the amount of time your replenishable FBA ASINs have been available in stock in a previous 30-day period, weighted by the number of units sold for each SKU in the previous 60 days.

An SKU can be indicated as non-replenishable in Restock inventory by going to the Action column drop-down menu and choosing Hide recommendation. Hiding all SKUs linked with an ASIN prevents the ASIN from your FBA in-stock rate and approximated FBA lost sales.

The performance bar also has two related metrics of interest showed under the replenishable FBA in-stock rate percentage on the Inventory Performance dashboard:

  • First estimated FBA loss sales in the previous 30 days is equal to the estimated unit sales on days your products were unavailable multiplied by the average price of items.
  • Secondly, the 'Restock today' button displays SKUs' volume where the restock lead time is lower than the supply days. Supplier's order must be expedited to prevent products from being unavailable.
Seller Guide to Amazon Inventory Performance Index

5. How to improve your Amazon IPI Score 

1.  Handle stranded inventory to improve your amazon IPI score.

The first way to obtaining a higher Amazon IPI score is to deal with your stranded inventory. Stranded inventory are stocks stored in an Amazon fulfillment center without active listing. This negatively impacts your IPI score.

There are two options in dealing with this:

  • Relist it
  • Remove it.

A removal order can be created for stranded items using Amazon's Seller Central. 

2. Removing excess inventory also improves your amazon IPI score.

Excess inventory refers to storing more inventory than you should at a fulfillment center. It is simply storing more than the product forecasted demand. Slow-moving products may end up creating an excess inventory scenario.

Managing this situation can be done by removal orders. However, act cautiously as disposing of your inventory or shipping it back to your warehouse requires paying a per-unit cost, which quickly mounts up.

Improving your Amazon IPI score enables you to keep your fast-selling products in-stock, so doing away with slow-moving products might be worth it.

Consider the option that would be best before you make a decision. DataHawk's inventory management software helps sellers deal with surplus stock issues.

The DataHawk's Amazon Inventory Management Software allows you to set your transfer schedule and order schedule as required. It allows you also to check your Amazon stock performance and input your target maximum inventory value. 

3. Improving your sell-through rate improves your amazon IPI score.

Sell-through compares the ratio of a product's stock sold to the average number of products available at an Amazon fulfillment center. This is calculated continuously over the previous 90 days. The Sell-through rate is improved by increasing sales.

The sales increase is usually done by improving your listings and by increasing Sponsored Ads. A good listing is vital to increasing your sales. Good copywriting can help you increase traffic and improve leads conversion, these increase your sell-through and improves your IPI.

You can also adjust your logistics systems by reducing your Amazon inventory and using third-party logistics (3PL). Using a 3PL option ensures that your high MOQ (Minimum Order Quantity) for a slow-moving product is received instead of going to your Amazon fulfillment center. Using a 3PL ensures your IPI doesn't suffer, and though it may not seem worthy initially, its value is unprecedented. Amazon uses the IPI score as a monitoring and rating tool to urge sellers to adopt better Amazon inventory management practices.

Products with very poor sell-through or slow-moving rates should be liquidated and not restocked. It is more profitable to stock products with quick sales but less profit margin than stock items with high-profit margins but slow sales.

4. Stay in Stock Improves Your Amazon IPI Score

By avoiding being out of stock, you perform better on the "in-stock" metric. Over the past couple of months, sellers have not been able to get their inventory to Amazon, resulting in many being out of stock. As a result of Amazon's delay with pick-ups and check-ins, sellers have endured several weeks, resulting in reduced in-stock inventory metric performance, which negatively impacts the IPI score. 

One good Amazon Inventory Management technique to prevent stock-outs is to have a system of buffer stock. Sellers need to have a restocking delivery come in a few days before your stock runs out. It is important to have a defense against anything going wrong.

A safeguard Amazon stock performance system will alert you to send in inventory in advance before you run out. This ensures that even if Amazon has delays with checking-in your shipment, you'll be ok. You can keep a buffer stock at your third-party (3PL) warehouse.

6. Amazon Updates IPI [2021]

  Amazon has changed the IPI or Inventory Performance Index threshold requirement to 450 and introduced ASIN-level quantity limits on products in FBA. at the beginning of 2021. 

According to Amazon -

"As the new year approaches, we are lowering the Inventory Performance Index (IPI) threshold to 450:

  • If your IPI is 450 or above in week 51 of 2020, starting January 1, 2021, you will not be subject to storage volume limits.
  • If your IPI is below 450 in week 51 of 2020, you will continue to be subject to storage volume limits. We will notify you of your next period limits, which will go into effect on February 1, 2021."

Establishing a concrete product-market fit and making sales projections that are tight and seamless makes removal and liquidation an occasional task to face rather than an annoyance that can kill your store's momentum before it ever has time to build.

7. How to check your Amazon IPI on Seller Central?

Within Seller Central, there is a dashboard with all of your key performance measurement standards. The dashboard is visible with all of the key metrics by going to the seller central dashboard (login required). Your IPI score is typically calculated weekly on Mondays.

8. Top "IPI-Amazon Inventory Performance Index" Seller FAQs

  • Why have I seen my IPI score go down even though I recently improved my influencing factors?

Your IPI score combines the past three months of sales, inventory levels, and costs into a single rolling metric updated weekly. You may have seen your score decline coming out of the holiday season. Typically, when sales are high, as they often are during December, it’s easier to maintain healthy inventory levels. But if sales start to drop off, you still need to continue to manage your inventory levels, using the four influencing factors as guidance.

If, for example, you removed some inventory last week, you may not see an immediate change in your IPI since that’s only one week out of the three months that factor into your score. By maintaining good to excellent influencing factors daily, you should see your IPI score improve over time.

  • How is the FBA in-stock rate calculated?

FBA in-stock rate is the percentage of time that replenishable FBA products have been in stock for the past 30 days, weighted by the number of units sold in the past 60 days.

  • What Are The Consequences of Not Hitting the Target Score?

There are a lot of reasons, other than the IPI score, to maintain a healthy inventory. When you have firm control over your inventory it’s easier to grow sales, find ways to reduce costs, and generally improve profitability. And the hard truth is that sellers and brand owners that fail to meet the minimum IPI score dictated by Amazon will face stock limitations, their associated storage fees, and additional fees. Let’s dive into how the IPI is calculated so you can start taking steps towards improving your inventory management and planning. 

9. Key Takeaways

  • IPI helps in proper Amazon Inventory Management
  • IPI helps to monitor your Amazon Stock performance
  • DataHawk reporting can help you quickly identify and track the products that lose Amazon Buy Box.

You should keep an eye on your Amazon Inventory Dashboard regularly to prevent potential lost sales and implement any of the suggestions Amazon offers you in terms of what you can do better.

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