IPI (Inventory performance index) is a score defined by Amazon to measure the level of efficiency in FBA sellers inventory management. IPI allows Amazon to optimize space in warehouses by bonifying sellers for being instock on products that customers want the most (High demand) and penalizing them for products that customers want the least (Low demand). Find out more about IPI definition here.
What this means for you as an FBA seller is that you need to maintain a high stock on top sellers and low stock on bottom sellers. Before diving deep into how to optimize IPI, we highly recommend you to have an active FBM offer as a contingency plan in case of any possible decisions to lower storage limits in Amazon warehouses (Especially during events). Gonuggets can set and manage at scale such a solution, feel free to reach out to us through this link and speak directly to Ex-Amazonians who participated in building and scaling FBM!
We will explore in this article the scenario of a low IPI (Below 450) and the actions you should take to improve it.
450 is the IPI score threshold below which Amazon will start to set storage limits. If you are experiencing then you must have made wrong buying, marketing and pricing decisions. It is very easy to make these wrong decisions but it takes on average of 8-12 weeks as well as a considerable effort to turnaround the situation. Below 3 tips for recovering your IPI:
- Define and visualize the root cause: A low IPI is caused by an imbalance in inventory vs demand, resulting in unfulfilling highly demanded products and having too much stock for products customers don’t want to buy. Hence, you need to look at the right data to understand your inventory situation by 1) Ranking products by descending order of top sellers to bottom sellers, considering trailing 90 days of sales if you were 100% instock 2) Computing the number of days of inventory on hand. You will be able to clearly visualize the demand distribution and differences in days of stock across your products portfolio.
- Inventory push and pull: based on the list you would have defined, you should increase the sell-through of products with excess inventory, either by removing inventory or reducing prices. In general, if you haven’t tested price reductions, start by this as it gives you insights on the price points at which customers are willing to buy your products. As you increase highly stocked products sell-through, you start to go below your inventory limits, and you can restock top selling products inventory. In extreme cases, a complete removal of inventory then restocking of only few top selling ASINs is needed to improve your IPI.
- Managing stranded inventory: Beyond bad inventory management decisions, you could have made catalogue mistakes leading to suppressed listings. A suppressed listing is removed from visibility in both search and browse functions until the issues and policy breaches within it are fixed (though it remains visible in your seller dashboard). There are several reasons why a listing could be suppressed (no main image, breaching description policy, wrong category choice, etc) . Refer to our article “3 main inputs to consider for an optimized detail page” for guidance on how to create correct listings.
If you want to know more about how to improve your IPI or you want to implement scalable and automated solutions to manage your inventory when selling on Amazon, let’s chat!