What is Inventory Performance Index (IPI) Score

A woman checking the inventory performance index score

Inventory management is critical to your success as an Amazon seller. After all, if your best-selling items run out of stock, you’ll lose sales and the sales rank traction you’ve worked so hard to achieve. Overstocking, on the other hand, can result in opportunity costs, storage fees, and removal fees.

If you use Amazon FBA for some or all of your order fulfillment, you should be aware of your Amazon Inventory Performance Index (IPI). Your IPI is calculated using metrics directly related to your inventory’s performance.

The IPI threshold for FBA sellers has been updated multiple times since it was first introduced in Q2 2018. The Amazon IPI threshold will be 400 in 2023. Because you won’t get much notice when the IPI threshold changes, keeping your IPI score above the threshold is critical all year.

The Inventory Performance Index (IPI) is one of the most significant changes Amazon has recently made to its fee structure. What is the inventory performance index, how is it calculated, and what are the consequences of a low IPI? All of these factors will be explained in this article.

What is the Inventory Performance Index?

The Amazon Inventory Performance Index (IPI) was launched as a metric for Amazon sellers to manage their inventory efficiently. The Amazon Inventory Performance Index (IPI) evaluates the condition of your inventory within the Amazon network.

Inventory health refers to having either too few or too many units. Out-of-stock items and lost sales result from having too few inventory units. On the other hand, too many inventory units result in excess holding and storage costs.

Amazon’s inventory performance index is a number that ranges from 0 to 1000 that is used to assess inventory health by capturing low and excess inventory levels for your Amazon SKUs (Stock Keeping Units).

Amazon’s IPI has the potential to benefit both sellers and Amazon. Inventory optimization will help sellers reduce lost sales and inventory holding costs. This also benefits Amazon by ensuring sellers stock its warehouses with the right items in the right quantities, allowing it to utilize its vast warehouse network better.

How is the Inventory Performance Index (IPI) Calculated?

The most annoying aspect of the IPI is Amazon’s refusal to comment on how it is calculated. Instead, Amazon responded, “The calculation is proprietary and will not be published, just as we do not publish the Buy Box algorithm.” As follows, Amazon provides a very unhelpful explanation of how to improve your IPI. “The best way to improve your IPI score and reduce FBA storage fees is to reduce unproductive inventory while keeping productive inventory lean while ensuring you have enough on hand to minimize lost sales.”

Stranded inventory may impact your IPI score, but sellers can easily resolve this issue. Simply put, the key factors that raise your IPI Scores are:

  • Reducing excess stock at the Amazon warehouse
  • Increase your sell-through rate

How to Improve Your Amazon IPI Score

Improving the performance and practices of your FBA inventory will improve your IPI score. You must be aware of your lead and processing times and how long it takes to order, repackage, and label your products. To stay in stock, be as efficient as possible. Here are some suggestions to help you improve each of the 4 metrics that are used to calculate your score:

  • Stay in stock
  • Sell or remove excess inventory
  • Fix stranded inventory
  • Improve your sell-through rate

Stay in Stock

Amazon calculates your FBA in-stock rate based on the days you were in stock at FBA in the previous 30 days. This only applies to products that can be replenished. Mark the product as non-replenishable in Seller Central if you do not intend to replenish it.

Sell or Remove Excess Inventory

If you have excessive inventory at the fulfillment centers operated by Amazon, you must sell or remove it. Amazon calculates excess inventory based on what it believes you will need to restock in the next 90 days. Therefore, anything above that is classified as excess inventory. You could try liquidating, lowering the price, advertising more aggressively, or combining the three methods to sell this inventory. Another option is to create a removal or disposal order to avoid storage fees.

Fix Stranded Inventory

Several factors can cause inventory to become stranded. Perhaps there was a listing error, or you deleted a listing but left inventory at FBA. In Seller Central, Amazon will notify you of the problem for each stranded ASIN. Check for stranded inventory on a regular basis and resolve any issues as soon as possible.

If you can keep your inventory in stock and sell your products, you’ll naturally have a high IPI score. However, maintaining a good IPI score and running your Amazon business smoothly requires accurate and timely inventory forecasting.

Improve Your Sell-through Rate

The FBA sell-through rate is a 90-day metric as well. This is calculated by dividing the number of units you sold by the amount you had in FBA storage during those 90 days. You don’t want your sell-through rate to be 0, which means you didn’t sell anything, or 100, which means you sold everything. Instead, you want your sell-through rate to be as high as possible without risking running out of stock.

Consequences of a Low Inventory Performance Index 

If your IPI score is low, Amazon may limit inventory storage and charge higher storage fees. Account restrictions will also affect your ability to create inbound shipments. 

Amazon announces two score check weeks each year. This is where they assess and set storage volume limits. As a result, ensure you meet the required IPI threshold during either of those weeks. As a result, you will be exempt from storage volume restrictions for the following week’s check. FBA Sellers with a professional plan and inventory at a fulfillment center can also access Inventory Performance Index scores. 

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