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 the occasional stock out doesn’t just affect your customers. It can limit your ability to sell effectively on Amazon in the future.
What Is Amazon’s Inventory Performance Index?
Amazon’s Inventory Performance Index (IPI) is a built-in metric used to gauge your performance on Amazon 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 IPI 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 threshold of 450 that all sellers must meet to avoid limitations on available storage space in FBA warehouses. Those limitations can include a maximum of 25 cubic feet per seller, with any excess inventory 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 can’t predict sales effectively?
Factors That Influence Your IPI Score
Amazon policy considers excess inventory to be any inventory which exceeds 90 days of supply based on sales demand.
Your IPI score is also based on your ability to meet customer demand and replenish available stock effectively.
Any inventory that’s currently stored at an FBA warehouse without an active Amazon listing.
Amazon sets a 365 day limit for inventory at FBA warehouses, with some fairly exorbitant fees. 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 can impact your storage limits, your IPI score still plays a significant role. Professional sellers with an IPI score 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, your available storage is subject to your overall IPl performance as a seller. Make certain you review your Inventory Performance dashboard 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 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.) Amazon’s Inventory Age page in your inventory dashboard will show you SKUs with both high and low rates of sales. Your sell-through rate can be improved by running off-season sales, product bundling or simply removing inventory that’s not selling altogether.
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 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? 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 product 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.
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