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Good inventory management can lead to reduced costs, improved profitability, and more business growth for FBA sellers. Improved inventory management will also help your products be received and delivered to customers more quickly. The Inventory Performance Index (IPI) measures inventory management over time, including how well you balance inventory levels and sales, fix listing problems that make your inventory unavailable for purchase, and keep popular products in stock. We will continue to improve the IPI score to ensure it encourages and reflects inventory management best practices.
As there has been some confusion about the new metric, here are answers to frequently asked questions:
What does my IPI score mean?
An IPI score above 450 means your FBA inventory is performing well, and a score above 550 indicates your inventory is a top performer. A score under 350 could lead to limits being placed on your FBA storage and to overage fees, as outlined in the new storage limit policy.
Why have I seen my IPI score go down even though I recently improved my influencing factors?
Your IPI score combines the past three months of sales, inventory levels, and costs into a single rolling metric updated weekly. You may have seen your score decline coming out of the holiday season. Typically, when sales are high, as they often are during December, it’s easier to maintain healthy inventory levels. But if sales start to drop off, you still need to continue to manage your inventory levels, using the four influencing factors as guidance.
If, for example, you removed some inventory last week, you may not see an immediate change in your IPI since that’s only one week out of the three months that factor into your score. By maintaining good to excellent influencing factors daily, you should see your IPI score improve over time.
How do the different influencing factors affect IPI?
Influencing factors are designed to advise you of opportunities to improve your IPI score. By ensuring your inventory product settings are accurate and by designating your non-replenishable inventory, you can better inform inventory planning recommendations and more accurately identify the opportunities to improve your inventory performance metrics. The best way to increase your IPI score and minimize your FBA storage fees is to reduce unproductive inventory and keep your productive inventory at lean levels while ensuring you have enough on hand to minimize lost sales.
Excess inventory percentage: Excess inventory percentage helps you decide when to mark down or remove your products. Reducing excess units may help you increase your IPI score. Continuing to hold excess inventory and paying a higher percentage of your FBA revenue in fees may reduce your score.
FBA sell-through rate: Improving your sell-through rate can help you increase your IPI score. Conversely, a decrease in sell-through (holding too much inventory compared with sales) may decrease your score over time. If you recently shipped a lot of units in anticipation of sales, you may see your FBA sell-through rate temporarily decrease. However, as long as you ramp up your sales to balance your inventory volumes, you should see your sell-through rate improve.
Stranded inventory percentage: Inventory that incurs storage fees without the possibility of sales may hurt your IPI score. As with excess inventory, stranded inventory can contribute to you paying a higher percentage of your FBA revenue in fees, which may reduce your score.
FBA in-stock rate: The FBA in-stock rate indicates how much value you are getting out of your products by keeping replenishable ASINs in stock. A low FBA in-stock rate doesn’t lower your IPI score, but if you go out of stock on a popular product, your lost sales represent a missed opportunity to increase your IPI score.
Marking a SKU as not replenishable, by hiding it on the Restock Inventory page, removes it from your FBA in-stock rate calculation. It’s not in your best interest to hide replenishable SKUs in an effort to increase the FBA in-stock metric, due to three reasons. First, doing so does not directly change your IPI score. Second, an inaccurate FBA in-stock rate may cause you to miss valuable restock opportunities. And third, the SKUs you hide will no longer display restock recommendations.
How is the FBA in-stock rate calculated?
FBA in-stock rate is the percentage of time that replenishable FBA products have been in stock for the past 30 days, weighted by the number of units sold in the past 60 days. Here is an example:
FBA in-stock rate = (% of past 30 days SKU was in stock) * (60-day sales velocity) / (60-day sales velocity)
In this example, the FBA in-stock rate for these two replenishable SKUs would be calculated as follows: [(2x50%) + (3x100%)] / (2+3) = 80%.
How does hiding not replenishable items affect FBA in-stock rate and the IPI score?
Hiding SKUs affects only your FBA in-stock rate, not your IPI score directly.
For example, let’s assume SKU #2 in the example above is seasonal inventory and not replenishable. If you keep it designated as replenishable, your in-stock rate for all SKUs will look higher than it really is – in this case, 80%.
If you properly designate SKU #2 as not replenishable, by hiding it on the Restock Inventory page, your in-stock rate drops to 50%, since the rate now factors in only your replenishable inventory: SKU #1. The in-stock rate drop doesn’t affect your IPI, however, because your inventory levels didn’t actually change; you still have zero units of SKU #1 and 10 units of SKU #2.
Rather, the in-stock rate change from 80% to 50% reveals the opportunity cost of SKU #1 being out of stock. By replenishing SKU #1, you can likely sell more – and that, in turn, could lead to a higher IPI score.
When will I find out how much my storage is limited?
Starting July 1, 2018, Amazon will adjust storage limits for sellers whose IPI score has fallen under the minimum threshold on two dates during the previous quarter. If your score is less than 350 six weeks before the end of a quarter, you will be notified of your potential storage limits. If your IPI is still below 350 at the end of that quarter, limits will apply for the following quarter. For example, if your IPI is below 350 on May 19, 2018, you will get a notification informing you of your storage limits. And, if your IPI is still below 350 on June 30, 2018, those storage limits will go into effect on July 1, 2018 through September 30, 2018. See the new storage limit policy for more details.