When you sell on Amazon, through FBA, you know that there’s a strategy to balance inventory to match buyer behavior and avoid overstock fees at Amazon warehouses. If you run out of inventory, your buyers are going to make their purchase somewhere else. Amazon’s golden rule: Don’t run out of stock. On the other hand, too much inventory isn’t ideal either. You’ll be paying excess in storage fees, and risk having stale dated items. So, it’s important to be aware of your Amazon’s Inventory Performance Index (IPI).
What is an IPI (and where can you find it?)
Your IPI is the grade you receive, based on your ability to manage inventory efficiently. Your score can be anywhere between 0 and 1000. This score is based on several factors such as:
- Excess inventory Excess inventory (%) = no. of excess FBA inventory items total units in FBA inventory(100)
- Ensuring inventory is “buyable” (that means not stranded) Stranded Inventory (%) = total no. of FBA unavailable for purchase units total no. of FBA units (100)
- “Sell through” rates Sell-through Rate = (the number of units sold ÷ the number of units received) x 100 over the past 90 days
- In-stock inventory rate In-stock (per SKU) = (% of days in stock in the last 30 days)*(60-day sales velocity)
How can you find your IPI?
Log in to Seller Central. Click on Inventory and select Inventory Planning from the drop-down menu. Click on the Performance tab to view your IPI score.* When Do New sellers get an IPI score? It will take about 3-4 months for new sellers to get an IPI score on their dashboard. If a score falls below the average, Amazon may set storage limits on your account for the following quarter.
*(only professional sellers will get an IPI score, individual sellers do not have access to that part of the dashboard)
Why is it important to have a high IPI score?
Your IPI is directly linked to the storage space that Amazon allocates. If your IPI is low, Amazon may penalize you with increased storage fees, and inventory restrictions. These have the potential to be very damaging, especially leading up to seasonal shopping trends.Now that we know what affects your IPI, are there ways to improve it?
- Use automation and software for forecasting your stock replenishment timeline.
- Optimize your inventory levels
- Avoid overstocks by monitoring your inventory levels regularly and adjusting them accordingly.
- Keep track of your sales data and make sure you have enough inventory to meet demand without having too much excess inventory.
- Maintain up to 60 days’ worth of stock
- Increase the frequency of sending inbound shipments to Amazon
- Review your supply chain timelines to prevent being out of stock
- Fix stranded inventory
- If you see that sales are slowing, run promotional sales to move your inventory
What are the most common inventory challenges that affect your IPI?
Avoid going out of stock at all costs! Let’s say that you’re waiting on a shipment to arrive, and there’s a delay. You may decide you want to slow down your sales so you don’t go out of stock. How?- Pause your advertising campaigns
- Increase the selling price (but be aware of competitor’s pricing to avoid a high-pricing error)
- Create removal orders
- Put items on sale
- Delete inactive listings and set a removal order
- If there are listings that are suppressed, edit and improve to get them live and selling
- Use a repricing tool
What is the difference between restock limits and storage limits?
Storage limits are based on VOLUME. (measured in cubic feet). And, with an IPI of higher than about 500, you may have unlimited storage.
Restock limits are based on the number of “units” on hand. Restock limits are not impacted by your IPI. Amazon does not want to be a storage facility, they want to be a fulfillment facility.
Final tips:
- Establish a good relationship with your suppliers
- Maintain about 60 days of inventory
- Run promotions to stimulate traffic and keep inventory moving
- Run inventory checks twice per month to help avoid long-term storage fees
