Increase and maintain the IPI score to avoid logistic nightmares
The Amazon Inventory Performance Index, or IPI, is a metric that reflects sellers’ inventory activity.
Amazon uses the IPI score to allocate storage space in its fulfillment centers.
Sellers use the Inventory Performance Index as a key metric to find new opportunities to improve the bottom line and better understand general performance.
To always give the most to its customers, Amazon measures inventory efficiency to know which seller can deliver the best customer experience.
If your IPI score falls below a certain threshold, your inventory storage will be limited, and storage fees will increase.
An IPI score represents your overall inventory performance by considering your recent and long-term inventory activities.
The storage limit is calculated on a storage-type, rather than ASINs type, which creates restock and inventory problems for many professional sellers.
All accounts may experience some storage limits during the year, but they can increase these limits again by improving the IPI score.
Amazon Inventory Performance Index and penalization
Each seller has an FBA quantity limit.
To check your inventory limits, go to seller central, click on Inventory, and Manage FBA Shipment.
Amazon assigns these limits as its storage space is not infinite, to maintain optimal customer experience and the 1-day shipment that made its service unique in the world.
Sellers have the Amazon Inventory Performance Index score based on how well they handle restock, overstock, and out-of-stock.
When bestsellers are out of stock, sales ranks sink, which decreases the sell-through rate and IPI.
Sending more units of an unsold product, for example, will negatively impact your IPI score, while Amazon will accept more units of products that show high sales volume and high sell-through rate.
Once your score goes below the threshold, Amazon will reduce your inventory space in the fulfillment center and penalize you with extra fees.
If you are on FBA, a good IPI score will save you from the storage restrictions that limit your inventory space in the Amazon fulfillment center.
What is the Amazon IPI score threshold?
Starting January 1, 2022, Amazon has stated that the new IPI score limit is 400 points, and not 450 anymore.
The longer you keep your IPI score high, the better it will be in case of short-term problems.
What are the effects of a low IPI score?
In 2021, Amazon decided to calculate the inventory space for sellers based on a storage-type method rather than an ASIN type one.
Now, sellers have limits for products categorized as standard-size, oversize, apparel, footwear, etc.
With these new limits, many sellers had to deal with real issues because they suddenly ran out of space in FBA, with inventory space limits almost reached and perennially reduced by up to 50% for some product categories.
When you have less storage space you work differently, burning more resources to find new shipment solutions, implementing new strategies, and doing extra math to stay profitable.
And when you launch new products, your available inventory score will be the boost or the brake of your success.
What doesn’t affect your inventory score?
Removal orders and new product launches will not impact your inventory performance score.
You can’t be penalized for a low sales volume during a sell-through period following a product launch.
After 90 days you can experience an overstock of unsold units.
That’s when it becomes a problem.
Following this period, your product is not considered new anymore, and its inventory forecasting and sales performance will impact your IPI score.
Are you looking for a way to get maximum visibility for your new product launches?
How does Amazon calculate the IPI score?
Amazon calculates the IPI score four times a year.
The data is processed at the end of March, June, September, and December; every three months.
How is this metric calculated?
Here are the factors that determine the IPI score:
- In-stock inventory
- Sell-through rate
- Excess inventory
- Stranded inventory
These elements are the same you find on your inventory dashboard of seller central.
And are all connected between them.
These factors will impact your inventory performance index and set your Amazon storage limit for that account.
Plan your In-stock inventory
Do your best to show Amazon how well you manage best seller products.
When you can’t restock your best-selling products, the system will penalize their placement.
In-stock inventory can’t kill your IPI score. However, it is crucial to improve your IPI score when it drops.
Find the balance for a good Sell-through rate
All professional sellers would like to achieve a high sell-through rate for their catalogs.
The sell-through rate is the total amount of sold units, divided by the average units stored in the fulfillment center, calculated over 90 days.
Always monitor this KPI.
Amazon algorithm knows how many units you sell in three months and how well you restock them without excess or shortage.
When this indicator is at risk, Amazon will send notifications to show you what you can do to improve it.
Amazon gives tips and these are the best starting point to fix any sell-through rate problem.
What causes these problems? All come from the same roots: catalog optimization, pricing, wrong inventory strategies, and many other troubles to fix with support.
To get an average Sell-Through rate score, you have to sell more than five units per day, stored in the fulfillment center for less than two weeks.
Manage your Stranded Inventory
Stranded inventory and dead stock are one of the most annoying things.
These units are good, ready to go from the fulfillment center, but aren’t listed on Amazon and can’t be sold because there is no active offer.
When it comes to dead or stranded inventory, is all about losing money, as you still have to pay for the stranded inventory storage fees.
The problem could be your product listing. Check SEO optimization and backend. Take your time to analyze everything in depth.
Most of the time, when you have stranded units, you contact the support that may be able to help you or not, and if not, you open a case.
Sometimes, AMZ tells you what the problem is, but many listing problems need direct support from the internal team to be solved.
The goal is to fix any listing problem without placing any removal order, if not needed.
If your listing is fine, then check the pricing.
Amazon systems know almost everything about the products listed on the platform, so be aware of this when you set your prices.
Maximum or minimum too high or too low can cause stranded inventory, and Amazon will set that offer offline.
Be sure that the stranded units are not restricted for any reason. Is your ASIN a medical device? A supplement? Or simply a product like Christmas lights?
Amazon may ask you to provide documents and tests to verify the integrity of those products. Once you send the docs, the products will go online again.
Excess Inventory and IPI score
It is pretty easy to experience some excess inventory problems.
This metric indicates a problem with one or more items, and you must understand why these products are not appreciated as you expected.
Is the price too high for that niche? Did you ship too many seasonal products?
Whatever might be the cause for excess inventory, you need a quick solution.
Excess inventory becomes aged inventory, and after more than 365 days, Amazon applies the aged inventory surcharge, better known as the long-term storage fee in the past.
Since maintaining healthy inventory management is a technically challenging task with many small, seemingly unrelated daily challenges, keep a close eye on these elements with some appropriate tools.
And there are even more factors in the game! As an Amazon account manager, you want to keep everything under constant observation!
Along with excess units, Amazon will share the estimated total storage cost and reduce excess inventory.
If you are an independent FBM seller, monitor your Pre-Fulfillment Cancellation Rate to avoid penalizations and other negative consequences.
A Pre-Fulfillment Cancellation Rate value of over 2.5% negatively affects your Seller account rating, lowering your overall performance.
How to check Inventory Performance Score in seller central?
Track your IPI score at least once a week or each Monday.
To see your score visit the Inventory dashboard to see the performance bar above the Excess Inventory section.
Sellers are constantly paying attention to the inventory dashboard, and there is no other way to run a healthy store on Amazon. But once you are on the dashboard to check the score, it could be too late.
The IPI score is the sum of past mistakes and past successes.
It’s mandatory to create and implement an inventory strategy that is one with all the other E-commerce aspects.
If you are a seasoned seller, there is no need to anticipate anything since you probably know how annoying is to cope with the fulfillment center space restrictions.
But in case you are facing some troubles and difficulties, book a discovery call with one of our account managers to find solutions.
How to increase the Amazon IPI score?
The most obvious answer is to be a healthy seller.
But our account management service exists for a specific reason: to provide sellers and vendors with accurate and cutting-edge solutions.
Here’s how to avoid Amazon Inventory Performance Index reductions:
- Check that products and listings are optimized, free of errors and technical problems
- Fix any stranded and dead inventory
- Avoid overaged storage extra fees
- Improve your 90-day sell-through
- Use inventory management automation to avoid out of stock, replenish your FBA inventory on time, and maintain a healthy sold to ready-to-sell ratio
- Reduce long-term storage fees
- Resize your POs to avoid overstock, aged products, and excess inventory.
Amazon will support you with recommendations on the Inventory Performance dashboard.
However, a seller should stock enough to cover 1 to 2 months to maintain a healthy sell-through and slowly raise the IPI score.
Storage limit penalization and quick custom solutions
Is your Amazon business affected by the IPI score penalization?
Your storage limit will increase fees, thus reducing your profit weeks by weeks. What to do?
To reduce storage fees and maintain a high IPI score, sellers send repeated FBA shipments instead of bigger ones.
What are other available solutions?
a) You can try to negotiate with suppliers and get half of a cargo sent to the FBA instead of a fully-loaded truck, but this may be very expensive in terms of time and money and not sustainable.
If your storage space is limited, use a 3P warehouse to temporarily store some units until you are ready to ship via FBA again in the coming weeks or quarters.
A 3P warehouse space has a cost that can be lower than extra storage fees and multiple POs to FBA.
With a third-party warehouse, you can store units and quickly fix FBA problems using FBM.
If your Amazon account is affected by the storage limit and you are paying extra fees, recall some units and store them in your 3P warehouse.
You can send the same units back to FBA once the restrictions disappear.
b) If your stock is older than 15 months, you can issue a removal order paying a fee or sometimes for free (Amazon will notify you).
c) You can also re-launch some ASINs and start new advertising campaigns to reignite them.
d) Or you can have a dual listing to have FBA and FBM always available and address any shipping issues.
In conclusion, your unique eCommerce situation will determine the best solution.
And by the way, you can still face storage limits space even with a high or regular IPI score.
Contact us to ask questions about the IPI score or if you are in trouble and need quick full support from our account managers.