Just because you're an Amazon FBA seller doesn't automatically mean you're not going to face the same struggles as merchant-fulfilled vendors. Chief among them? Inventory management.
While many sellers assume estimating adequate stock during the holidays to be their biggest hurdle, inventory management snags can occur year-round—all to the tune of an estimated $1.1 Trillion globally.
But it's not just stock outs which can hinder your inventory management. Overstock can be one of the biggest obstacles facing many sellers. Not the least of which includes their ability to sell effectively on Amazon in the future.
FBA Inventory Management and Sales
Next to FBA storage fees, one of the biggest dilemmas most sellers will eventually have to face is how to manage excess inventory effectively.
After all, you decided to apply as an FBA seller for the sake of both convenience and security. That's why you're willing to put up with increasing storage and handling fees. Your customers need to know they can rest assured that their order will be fulfilled quickly and effectively; and you may not always have the time or resources to ensure optimal delivery on your own.
Likewise, there's only so much space the average Amazon fulfillment center can accommodate. Two out of every three Amazon sellers use FBA. And with over six million active sellers on Amazon in 2021 alone, the need to secure storage space has never been more vital.
What Is Amazon's Inventory Performance Index?
Amazon's Inventory Performance Index (IPI) is a built-in metric used to gauge your performance as an FBA seller. It's calculated on your effective management of inventory over a period of 90 days and is used as a tool to help you understand just how productive you are in replenishing and selling stock.
While it's designed to help you understand the level of balance between on hand merchandise and overstock, your Inventory Performance Index can also ideally be used as an indicator of your overall sales performance. The higher your score is on a 0 - 1000 range helps demonstrate your strength as an effective seller.
There's a minimum IPI threshold of 450 that ensures Amazon of a balanced inventory level. That threshold must be met to avoid limitations on available storage space in FBA warehouses, including a maximum of 25 cubic feet per seller, with any excess inventory ultimately being refused at fulfillment centers.
While your IPI score is calculated every three months, there's a bit of a dilemma. How can you manage stock effectively if you have no forecasted demand to rely on?
Key Factors That Influence Your Inventory Performance Index
Excess inventory
Amazon policy considers excess inventory to be any inventory which exceeds 90 days of supply based on sales demand.
Available inventory
Your IPI score is also based on your ability to meet customer demand and replenish available stock effectively.
Stranded inventory
Any inventory that's currently stored at an FBA warehouse or fulfillment center without an active Amazon listing.
Aged inventory
Amazon sets a 365 day limit for inventory at FBA warehouses, with storage costs being fairly exorbitant. However, sellers can choose to automatically remove aged inventory on their accounts.
FBA Storage Limits and Your IPI Score
While both your sales volume and available space at fulfillment centers will impact your overall inventory health, your IPI score may be one of the more significant factors in maintaining it.
More specifically, the storage limits on available cubic feet.
Professional sellers with IPI scores below 450 are allotted a minimum of 25 cubic feet, but are no longer subject to individual ASIN limits of 200 units previously announced in July 2020. Instead, available inventory storage limits are subject to your overall performance as a seller.
Make certain you review your inventory performance dashboard in Amazon Seller Central regularly to ensure you're not subject to critical limitations, particularly during high volume seasons.
How to Improve Your IPI Score
Review your Inbound Performance Summary every 30 days
Your performance as an Amazon seller is affected by any number of circumstances, including individual order errors and overall order fulfillment. Make certain you address any recurring issues as they can (and will!) impact your IPI score.
Improve your FBA sell-through rate
There's a certain balance of sell-through Amazon expects sellers to maintain every 90 days. However, your sales will fluctuate due to both demand and season (remember that the last two Prime Days have been far from predictable.) Long term storage fees for aged inventory can be dramatically steep, with out of season products frequently being the culprit.
Amazon's Inventory Age page in your inventory dashboard will show you SKUs with both high and low rates of sales, allowing you a clear and accurate understanding of your sell-through rate. Your sell-through rate can be improved by running off-season sales, product bundling or simply removing in stock inventory that's not selling altogether.
Fix stranded inventory
It's not uncommon for FBA inventory to remain at a warehouse without an active listing. This doesn't just incur storage costs. It affects your overall inventory health.
Recently, Amazon announced a liquidation program to help sellers remove excess and stranded inventory by liquidating it through a partnered wholesaler. For a small fee, FBA sellers can recover a portion of the net value from excess stock based on both sales history and the average selling price.
Reduce excess inventory
A good rule of thumb is to ensure you have adequate stock of fast moving items based on a 30-60 day projection. Items which have a lower chance of selling during that time can be reviewed on the Manage excess inventory page in your inventory performance dashboard, along with recommended actions you can take.
Revise your listing
It may not be your product that isn't selling. It may be that your listing isn't selling your product. Is your keyword strategy up to date? Just how optimized are your images? Are you using any of Amazon's advertising solutions to help drive conversions?
If you don't have the time or resources to fulfill your order, you may not have the time or resources to optimize your listing. That's the value of partnering with an agency who does. They don't just have the time and resources to ensure your listing reaches as wide of an audience as possible. They have the background and expertise which can cast your brand in an entirely new light.
Your Inventory Performance: A Key to Your Amazon Success
Your IPI score isn't just a question of meeting Amazon's standards. It can also be reflective of just how effectively you're able to sell.
Remember that your inventory performance also reflects your ability to market on Amazon. And that isn't always easy to achieve.
Your IPI isn't just a tool for inventory management. It can point out your strengths and weaknesses as a seller. The former takes time, patience and effort to develop. But the latter can be a wild card.
Just make certain you know how to use the right tools when you have a winning hand.
Color More Lines can help manage your inventory as much as we can manage your brand. Find out more at Color More Lines