FBA Inventory Performance Index: what exactly you need to know for 4th Quarter
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The Amazon had already rolled out an assessment tool known as “Inventory Performance Index (IPI)” for sellers to measure their inventory performance. Currently, Amazon has increased the lower threshold up to 500. The sellers are seriously concerned about it, especially those who run FBA Private Label business and about to launch their product in a few days or a month from now.

This read will give you insight on:

  • What is the FBA Inventory Performance Index?
  • Increasing IPI Minimum threshold isn′t something new for the sellers.
  • Where can you find IPI in the Seller Central?
  • IPI may not stay longer
  • How to calculate the IPI index?
  • What are the repercussions of a low IPI Score?
  • Useful strategy for boosting your IPI score
  • Bottom line

What is the FBA Inventory Performance Index?

The FBA Inventory Performance Index (IPI) is a criterion devised by Amazon to assess how well sellers manage their inventory. IPI is the step forward for setting a standard on inventory performance. IPI score rangers zero to 1000. A score above 500, which was previously 350 and then 400, indicates that a seller’s business excels, whereas a score below 450 surpasses the lower threshold of satisfactory performance.

Notice it:

You may need to work on improving your score immediately. The IPI score is part of Amazon’s other decisions to allow the seller to optimize their inventory and reduce the burden on Amazon’s warehouses.

Increasing IPI Minimum threshold isn’t something new for the sellers

Earlier, back in June 2020, Amazon has informed the sellers that the IPI threshold has increased to 400, will affect from week 20 (May 14, 2020). The sellers who have scored above 400 will receive unlimited storage for the 3rd Quarter (July 1 to September 30). If it is less than 400 as of week 20, the seller may have storage limits for the 3rd Quarter. Later on, in July 2020, Amazon informed that the IPI threshold for UK/EU increased to 500 from September 1, 2020, to December 31, 2020.

Where can you find IPI in the Seller Central?

Sign in to your seller central account.

Go to Inventory Tab and then click on Inventory Planning, where you find a performance tab that will show your IPI index score.

IPI may not stay longer

I perceive that Amazon’s IPI index may not stay longer or turn into a more desirable feature for the sellers. Though the IPI index may affect launches in-process, but it also offers sellers the opportunity to grow with efficiency.

How Amazon make you informed about IPI

Did you know? Amazon also offers you the free ride of IPI score? Amazon calculates your IPI index each Quarter and six weeks before the Quarter’s end. Rest is your grace period to perform.

For example:

If Amazon calculates your IPI score on September 30 at the end of the 3rd Quarter and six weeks in advance, it will update you about your current score. In this way, if you are below the minimum threshold, you can improve by the end of Quarter and save you from being penalized.

How to calculate the IPI index?

Amazon always encourages legit strategies to grow business and ensure fair competition in its market. The addition of Amazon IPI aims to improve the quality of business on Amazon and relax overflowing its warehouses. Yet, there aren’t so many details available about How Amazon calculates the IPI index, but we only observe the four indices i) Excess Inventory percentage ii) FBA sell-through rate iii) Stranded Inventory Percentage and iv) FBA in-stock rate to see how it works.

Let’s go through each index in detail: what does it mean and how is it calculated.

Excess Inventory

Excess inventory percentage lets you track your excess inventory that decreases your profitability due to a storage fee and other inventory-related costs. Excess inventory index has a direct impact on how well your store performs in terms of selling units. It may have a challenging situation for the sellers who sell seasonal products because their inventory moves slowly in the off-season.

Estimating the excess inventory percentage, Amazon calculates the impact of storage fees on your portability. The sellers have to cautious about how long they can stock their inventory in FBA warehouses. The stranded inventory has a direct impact on how well your store performs during the IPI check. It is a familiar situation for many sellers, especially for those who sell seasonal products. Such sellers can get in touch with Amazon and ask for additional review. In sum, through this indicator, sellers can quickly identify which product is in the stock for too long, and sufficient information will also be available to take appropriate action to tackle this situation.

FBA sell-through:

FBA sell-through is the second indicator of the IPI index. It is calculated by taking a number of products sold in the last 90 days divided by the average number of units available in the FBA warehouse. It will help sellers moving the products having lower sales quickly. Increasing sell-through rate will be possible through adjusting your advertising strategy for sales generation, or removing some of your inventory. Read about FBA PL a journey towards million dollar flippable asset

Stranded Inventory

Stranded Inventory, the third index, refers to the items in the Amazon warehouse that aren’t available for the customers due to some listing errors. What you need to do is check your inventory regularly, find such issues, and track their resolution. Amazon provides a “fix listing” option to find the exact reason your listing is stranded and how it can be resolved. In case you cannot get it resolved, file removal order from your stock.

In details, such items that remain in stock unavailable to customers due to some listing problems. You should regularly check your entire inventory to track such issues and either fix them or file removal to take items from your stock.

In-stock inventory

Amazon is more concerned about how long a product stays in its warehouse. Mind it: when a product reaches the warehouse and does not move, it may negatively affect your IPI score. Whenever your ASIN is out of stock, you had better flag it as “non-replenish-able” in the restock tool.

FBA in-stock rate is the percentage of time your replenish-able FBA ASINs have been in stock during the previous 30 days, weighted by the number of units sold for each SKU during the last 60 days.

Remember: deleting or closing inactive listing will not improve the IPI metrics; it only accounts for proper inventory management practices.

Another thing Amazon is serious about is the time products have spent in its warehouses for the past 30 days. Running out of stock does not influence your IPI score. But when a product lies around and is not moved, it is not good. Nerveless, you need to restock replenishable items in time as it increases your IPI. If the items in your inventory are unreplenishable, you need to mark them as such.

What are the repercussions of a low IPI Score?

Amazon has not disclosed how it deals with the sellers having a lower IPI index. To me, sellers may face restrictions and higher storage fees, cannot be confirmed yet. You can check your current storage limits at the bottom of any shipment planning window.

Useful strategy for boosting your IPI score

  • I assume you have learned about FBA Inventory Performance Index and how it works.
  • Now, let’s talk about some useful strategies to go along with IPI.

Here are a few strategies:

Get your inventory in order:

You should start ordering your inventory first. Find out the stranded and unsellable inventory and place the removal orders for those not required. Either close or delete the inactive listing. Remove problematic SKUs. Do it weekly.

Hide recommendations:

You may know that discontinued or non-replenishable products will not affect the IPI score. What you need to do is using the Restock Inventory tab, choose Hide Recommendations for all these products.

Do what you are doing:

IPI score isn’t a nightmare. Take it as a feature and let yourself grow with this. Work on improving your working improves your product ratings and feedback rate to grab more customers.

Taking care of shipment Plans:

Your sell-through rate is predominantly affected by the time your product stays in the warehouse. So, be vigilant about your shipment status, tweak prices, and give deals to boost up sales.

Count Archive listings:

Amazon counts those listing that you may convert from FBA to MFN. The only way around is to hide those listings from Amazon’s recommendations.

Focus on best-sellers:

The item that sells 5x than the other has a 5x impact on your IPI score. Solution: focus on your best-sellers to improve your BSR before the evaluation period starts.

Storage limits vary:

The storage restrictions are subject to change for each Quarter. You have to see which category has higher space limits for the coming quarters. Try to go with smaller products to save a high fee on bulk items.

Avoid penalization:

Be watchful of running out of stock through effective management of time for shipping your items. Amazon will not penalize you until you are out of stock. Don’t worry about fewer units in the stock.

Negotiate with suppliers:

If possible, negotiate your supplier to deliver smaller orders until reverting to unlimited storage and get back to normal.

 

Bottom line:

Amazon’s Inventory Performance Index assesses the seller’s performance, based on how it maintains inventory levels. As mentioned above, four factors are the key performance indicators to track the seller’s inventory performance. If you are Amazon FBA Private Label seller, watchful of your IPI score.

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