Are you wondering what the Amazon IPI score is and how it affects your business? This blog will detail the basics of the Amazon Inventory Performance metric and give you some useful tips to help avoid inventory-related issues that frequently plague sellers. The fact is, too much inventory and not enough inventory can both be problematic. Solid inventory management is one of the best ways to ensure your business is as profitable as possible. Read on to learn about IPI and how to optimise your performance in Seller Central.
What is an IPI score?
Are you seeing red, green, or yellow? The Amazon Inventory Performance Index (IPI) score is a quick-glance metric to gauge your inventory performance over time. At a more in-depth level, this figure uses a variety of details to calculate the inventory health and performance of your FBA account. This score is visible on your Inventory Dashboard in Seller Central.
What's a good IPI score on Amazon?
The colour-coded score ranges from 0 to 1,000. The higher the score, the better your inventory health and performance. As of Amazon's last update in January 2021, a score higher than 450 is considered a "good" IPI score and will show up as green. Anything below that can affect your account and will trigger a review to ensure you're improving.
(The scale of IPI performance. Courtesy of Seller Central for Amazon.com.)
Amazon fulfilment centres are made to distribute products, not store them indefinitely. Ensuring you do not have too much or too little inventory is crucial to your success on Amazon, as aged inventory costs your business in storage fees and causes Amazon to impose limits on your business. On the flip side, not having enough inventory will likely cause your business to lose the Buy Box. It’s troublesome for Amazon when popular products are frequently out of stock.
Why does the IPI score matter?
When sellers achieve consistently higher IPI scores, they will receive higher storage limits, adjusted for sales volume and available capacity. When setting limits for an upcoming quarter, Amazon considers both a seller’s recent sales volume and seasonal volume from the last year. When sellers stay on top of the IPI score and take actions to improve inventory efficiency, Amazon can more efficiently run their warehouses and get items to customers faster.
According to Amazon, the IPI is also built to account for seasonality or unexpected disruptions to your business, allowing your long-term inventory performance to serve as your safeguard and prevent your IPI score from short-term fluctuations. This gives you more time to adjust your logistics and manage your inventory more efficiently in different or unexpected circumstances, such as issues that may pop up during Q4.
IPI score indicators
There are several factors that influence an IPI score, and each metric is broken down further in Seller Central to help sellers address issues specific to their account.
Excess inventory percentage
Items that Amazon calculates as having over 90 days of supply based on the forecasted demand are classified as excess inventory. This metric shows the percentage of your inventory that's "excess."
Stranded inventory percentage
When a seller’s inventory is not available for purchase due to a listing problem, it results in lost sales and storage costs. Amazon refers to this as stranded inventory. Stranded inventory percentage is measured by the percentage of FBA inventory units that are currently not available.
FBA sell-through rate
This metric gives the rolling 90-day FBA sell-through rate for your business. It is calculated by units shipped over the past 90 days divided by the average number of units on hand in Amazon FCs during this time period.
FBA in-stock rate
Amazon wants to keep items that sell well in stock for customers. The FBA in-stock rate shows the percent of the time that replenishable FBA ASINs have been in stock during the last 30 days, weighted by the number of units sold for each SKU in the last 60 days.
Taken together, these metrics result in your IPI score.
Tips for managing your inventory health
Amazon recently launched a Manage Inventory Health tool. This page allows you to manage your excess and aged inventory in a new view that's easier to manage. It consolidates the information that used to be available on the Inventory Age and Manage Excess Inventory pages. Businesses can customise the view and optimise inventory by catalogue item. This page helps you view your storage or restock limits, reduce costs, and improve your Inventory Performance Index.
Our recommendations for managing inventory health will affect the metrics above and help you increase your score.
Remove or liquidate excess and unsellable inventory
Overstocks and unsellable inventory (such as damaged items or returns) can really impact your IPI. Be sure you pay attention to this type of inventory by watching the inventory age and setting up auto-removals for unsellable stock. This will also help you reduce storage fees if inventory is sitting in FCs waiting for removal.
Consider replenishing frequently
Depending on your product and category and the time of year, sending frequent, smaller orders as inventory fluctuates can be a great way to ensure you don’t have too much inventory (especially good for sellers and new launches). The longer sales history you have can also create a wealth of data to forecast inventory needs. This can help you account for any spikes or downturns. Frequent replenishing may not be an option during busy times at the FC, as waiting longer for orders to be fully received may result in unpredictable out-of-stocks.
A product's sell-through rate is calculated by the trailing 90 days. If you have a sell-through of 100, it means you sold out. A sell-through rate of 0 means nothing is selling. Both scores are an issue. If your inventory is fully stocked but not actually selling, your IPI will take a hit as inventory ages. Avoid this by ensuring you are proactively selling your product.
Some ways to improve sell-through on your products are to optimise your detail pages, run promotions such as coupons and Prime Exclusive Discounts, and develop your brand to cross-sell items. If you are a Brand Registry seller, you can do this through A+ Content, Brand Stores, and increasing your advertising bids. For more drastic and quicker measures, consider liquidating items through Amazon Outlet.
Fix stranded inventory
Create removal orders or clean up any issues causing stranded inventory. Once these issues are corrected, your IPI score should improve. You should be able to immediately spot any strange inventory issues on the Manage Inventory Health page.
More help for your IPI
Proper Seller Central management can help ensure your IPI score stays in the healthy range. eCommerce Nurse offers a range of services, from marketing to strategic consulting and full account management, to help you optimise your Amazon business. Please contact us for more information.