What is Amazon Inventory Performance Index (IPI) Score & How to improve it?
What is Inventory Performance Index?
The Inventory Performance Index (IPI) is a score Amazon assesses to determine how well sellers are managing their inventory. You can score between 0 and 1000.
You can see it at : Inventory Dashboard within Seller Central
How Amazon calculate the IPI?
The most frustrating thing about the IPI is that Amazon refuses to comment on how it is calculated.
Currently, though Amazon says there are three factors that affect your IPI score:
- Reducing excess inventory to increase profitability
- Increasing sell-through to balance your inventory weeks of cover
- Ensuring inventory is buyable by fixing listings that are stranded
Amazon explicitly states that “IPI points are not deducted for running out of stock”. This point bears repeating as it is a very common misconception: being out of stock will not negatively affect your IPI score.
Stranded inventory will affect your IPI score but it’s an easy fix. So, in other words, the key factors in improving your IPI is to avoid having over-stockages at Amazon and improving your sell-through rate. To the last point, Amazon calculates your sell-through rate as follows:
Sell through rate = Units sold/shipped over the past 90 days/average number of units available at fulfillment centers of the past 90 days.
So, for example, if you sold 100 units over the last 90 days and had an average of 200 units in stock during that time your average sell-through rate would be 0.5. My other sneaking suspicion is that Amazon heavily punishes products with zero sales over 90 days.
Amazon calculates your IPI score weekly on Monday.
What are the punishments for a bad IPI Score?
The punishments for a poor IPI score (varies between 400 to 500 – check Amazon for the most current thresholds) is inventory storage restrictions and higher storage fees ($10/CFT to be exact).
Amazon does not disclose how much your inventory storage limits will be until you fall below an IPI of 400 but in the one instance our account did fall below the threshold (previously 350) we had potential storage limits of roughly 5x our current storage. In this case, the storage limits would not have been very punitive; I’ve heard of cases when storage limits were very prohibitive.
You can see your current storage limits and potential storage limits at the bottom of any shipments planning window.
Amazon calculates your IPI each quarter (March 31, June 30, September 30, and December 31) and also 6 weeks prior to the quarter’s end. If it’s below 400 either at the quarter’s end AND 6 weeks prior then Amazon penalize you.
What Should You Do?
As the algorithm used to calculate IPI is a mystery, we can only hypothesize some firm action steps you can take to avoid a penalization by a poor IPI:
- Look at your IPI score now
- Make sure you have an IPI above the minimum threshold (between 400 to 500) either at the quarter’s end or 6 weeks prior
- Better utilize 3PLs for storage and increase the frequency of sending inbound shipments into Amazon
- Maintain 30 to 60 days of stock and not more
- Fix stranded inventory immediately
- Remove excess inventory
- Create shipments in advance if you think you will fall below 400 for both reporting periods
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