how does amazon calculate inventory performance index

Amazon recently began introducing new fees to penalize FBA sellers for slow-moving inventory. This change is meant to resolve overcapacity issues in many of its fulfillment centers.

Penalties are based on a seller’s score on the newly instituted Inventory Performance Index (IPI). A score below 350 may result in FBA sellers having limited access to storage by Amazon and also incurring monthly overage fees.

 

What is the Inventory Performance Index?

The Inventory Performance Index is a metric used by Amazon to set the standard on how well your inventory is performing. According to Amazon, “The new metric aggregates data from your sales, inventory, and costs to measure the overall growth and efficiency of your FBA business. The higher your score, the better your performance.”

Scores for the IPI range from zero to 1,000, with scores above 400 indicating that your business is performing well, and scores below 350 indicate there are issues that need your attention and action. Sellers with scores above 350 will have unlimited storage for standard and oversized items.

 

How is the Inventory Performance Index Score Calculated?

Your IPI is calculated based on “how well you maintain healthy inventory levels, resolve listing issues, and drive sales.” While they provide a score, the factors which affect it, and some ways to increase your IPI, Amazon doesn’t reveal exactly how it is calculated.

 

Monitoring Your IPI on the Inventory Performance Dashboard

Along with the new metric, Amazon provides FBA sellers with an IPI Dashboard that shows current IPI scores and the factors that are influencing it. Here is a sample of what it looks like:

Additionally, Amazon provides FBA sellers with three steps they can take to improve their scores based on the influencing factors:

  1. Excess Inventory suggestions to reduce your storage fees and carrying costs.
  2. Restock recommendations to increase your in-stock rate.
  3. Stranded Inventory actions to verify your inventory is available for purchase.

 

Using the IPI Influencing Factors to Raise Your Score

Let’s take a look at how you can use the influencing factors to raise your IPI score.

 

Excess Inventory

This value is established using product demand and the costs involved with that product. When the cost of the number of units you are holding in storage is more than the cost of taking an action to move those units (for example, reducing prices to increase sell-through or removing excess units), you may need to make adjustments to increase your score.

Amazon has a Manage Excess Inventory tool that will help you identify listings that may have excess inventory levels and provides information that will help you get a better return on your investment.

Here are a few quick tips to reduce excess inventory:

  1. Rework your product listings to gain more visibility. For example, revamp your photos and descriptions.
  2. Host a flash sale and drive social media traffic to your product listings.
  3. Bundle products with better selling items.

 

In-Stock Inventory

This value is the percentage of time that your ASINs have been in stock during the last month, weighted by the quantity of units sold for each SKU in the last two months. Amazon wants you to restock items that are selling well.

They provide recommendations on what you should restock and when. While staying in stock with the right ASIN can help increase your IPI score, there isn’t a penalty for not restocking a discontinued or non-replenishable item. A good inventory management software can also help with forecasting sales and alert you when products dip below their target level.

 

Stranded Inventory

Stranded inventory is stock that is not available for buyers to purchase due to a listing issue, but it remains in an Amazon fulfillment center. You should be checking for stranded inventory regularly, so you can edit a listing or create a removal order to remove the stock, if necessary.

 

Final Thoughts about Inventory Performance Index

You need to monitor the new Amazon Inventory Dashboard to make sure your IPI score stays above 350. This means you must manage inventory in a manner that ensures you have healthy inventory levels, maintain best-selling products in stock, and fix any listing issues.

You have to view Amazon fulfillment centers as just that – a fulfillment center – rather than your personal storage facility.

 

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