How Your Inventory Performance Index (IPI) Affects Your Inventory Storage Limits
Upcoming Changes to Amazon Inventory Storage Limits
Beginning July 1, 2018, Amazon will be using a new metric called the Inventory Performance Index (IPI) to determine your inventory storage limits. As part of this change, storage limits will now be based on the total cubic volume of your inventory instead of the total number of units.
Essentially, this assessment will bucket sellers into two groups – those who have an IPI above 350 and those who have an IPI below 350. Most sellers scores are between 400-800. Scores above 450 are considered good scores and anything above 550 is considered a top performer. This number is critical because it is the dividing line between sellers who qualify for unlimited storage (above 350) and those who are subject to inventory storage limits (below 350). Sellers without an IPI, such as new sellers, will be automatically subject to default storage limits until enough data is collected to generate a score.
Your Amazon IPI will be evaluated at the end of every quarter and used to determine your inventory storage limits for the following quarter. Evaluation and limit effective time periods break down into the following quarters:
- Q1 evaluation period: November 19 - December 31; Q1 limit effective period: January 1 - March 31
- Q2 evaluation period: February 19 - March 31; Q2 limit effective date: April 1 - June 30
- Q3 evaluation period: May 19 - June 30; Q3 limit effective period: July 1 - September 30
- Q4 evaluation period: August 19 - September 30; Q4 limit effective period: October 1 - December 31
You can review your Amazon IPI and see if you qualify for unlimited storage by visiting Inventory > Inventory Planning > Performance within Seller Central.
How Do These Changes Impact Me?
In general, these changes make sellers subject to more strict storage limitations based on their previous inventory management.
If you are subject to inventory storage limits and exceed your allotted inventory, you will be unable to send more inventory into Amazon and will be charged $10 per cubic foot beyond your limit for each month you are over.
Additionally, sellers will no longer be able to contact Amazon to request storage limit increases. Instead, they are bound by their set inventory storage limits until their Amazon Inventory Performance Index is reevaluated at the end of the quarter.
As a result, sellers need to be more proactive about monitoring their Amazon inventory performance and should take corrective measures quickly if they see their IPI starting to slip.
How Should I Prepare for These Changes?
Sellers with IPIs below 350 will receive an email from Amazon 6 weeks prior to the end of the quarter. If your score falls below 350, you have until the end of the quarter to boost your Amazon IPI and avoid having inventory storage limits imposed on your account. If you have not received an email from Amazon and would like to know your current IPI, you can review your score and potential storage limits under Inventory Planning within Seller Central.
The Amazon Inventory Performance Index is influenced by 4 key factors: how much excess inventory you have, the speed of your sell-through rate, how much stranded inventory you have and your ability to keep items in stock. You can work to improve or maintain your IPI by closely monitoring each factor and making changes when necessary. We’ll dive deeper into each factor in the next section of this blog.
What Factors Affect My Amazon Inventory Performance Index?
Your Inventory Performance Index is directly impacted by your excess inventory, sell-through rate and stranded inventory, and indirectly affected by your in-stock inventory rate. Within Seller Central’s Inventory Performance Index dashboard, each factor is assigned a colored bar that rates your performance from excellent to poor. The better your overall performance, the higher you can expect your IPI to be.
Excess Inventory
For any given product, you must have at least one unit of inventory over 90 days old or more than 90 days of supply before the inventory is considered excess.
Excess inventory is the single most important factor impacting your Amazon IPI. If you have a low IPI score, chances are, it’s because you have too much excess inventory. One or more of the other factors impacting your IPI may shift without much of a change in your IPI, but even a slight change in your excess inventory can cause your score to rise or fall.
Sell-Through Rate
Your sell-through rate is the number of units sold and shipped over the past 90 days divided by the “average” number of units available at Amazon fulfillment centers throughout this time period. We say “average” because Amazon takes four snapshots of your inventory levels (one today, 30 days, 60 days and 90 days) and takes the average of those numbers to determine your “average”.
The speed at which you sell through your inventory can have a noticeable effect on your IPI. While the impact is not as great as that of your access inventory, slow sell-through can and will negatively affect your score. This is especially true for new listings with a zero sell-through rate. As soon as your inventory hits the warehouse, it will start to negatively impact your sell-through rate if unsold.
Stranded Inventory Percentage
Your stranded inventory percentage is helpful in pinpointing products that are not selling due to a listing error. If your listing does not comply with Amazon guidelines, it may be pulled from the marketplace and become stranded – aka unable to be sold while still taking up space in Amazon’s fulfillment centers.
Amazon takes the total count of units in a fulfillment center without an active offer and uses that number to calculate the stranded inventory percentage. The impact of stranded inventory on your Inventory Performance Index isn’t high, but it will have an effect over time. This metric is extremely useful for identifying your stranded units and correcting your listings so you can once again make sales on that product.
In-Stock Inventory Rate
While your in-stock inventory rate is a helpful indicator of your inventory performance, it does not directly affect your IPI the same way your excess inventory, sell-through rate and stranded inventory do.
According to Amazon, your in-stock inventory rate is the percentage of time your replenishable FBA ASINs have been in stock over the past 30 days, weighted by the number of units sold for each SKU in the last 60 days. This means that only items with sales in the last 60 days should affect your in-stock inventory rate.
You can prevent low performing ASINs from being restocked by clicking "Hide recommendation” in the "Restock Inventory" page. While this will keep that ASIN from being factored into your in-stock score, there are a few factors to consider before hitting that "Hide recommendation” button.
- Hiding replenishable SKUs does not directly change your IPI score.
- A skewed in-stock inventory rate could cause you to miss out on valuable opportunities to restock your product.
- The SKUs you hide will no longer display restock recommendations.
If you do decide to limit your restocks, you are not penalized for having lower stock than Amazon wants; you are only penalized for having zero stock. So as long as you have some inventory, you will not be dinged by Amazon.
Do note that listings you archive but do not hide, and listings you convert from Fulfillment by Amazon to self-fulfilled, will still be included in your in-stock inventory rate.
How Can I Improve My Amazon IPI?
As we mentioned above, monitoring and adjusting your excess inventory, sell-through rate, stranded inventory and in-stock inventory rate are the best ways to improve or maintain your IPI. Here are just a few recommendations on how to keep your 4 factors in good standing.
- Be more strategic about how much stagnant inventory you have sitting at Amazon and how quickly it is selling through.
- Remove or sell through any excess inventory.
- Avoid excess inventory by clicking "Hide recommendation" next to any SKU's you no longer intend to restock from the "Restock Inventory" page.
- Do everything you can to keep from running out of stock on any active SKU.
- Employ Just-In-Time inventory replenishment strategies.
- Develop methods to more accurately forecasting your inventory needs.
- Consider shifting towards sending smaller quantities of inventory to Amazon more frequently.
We’ve found that a great baseline strategy is to begin by running reports to find your sales by ASIN for the past 60 days. Sort your ASINs from highest to lowest by the total number sold throughout that time period. Then, go down the list and address each ASIN. If an item is seasonal or non-replenishable, hide it. If it makes sense to restock an item, go ahead and do so. Keep in mind that your Amazon IPI score is weighted based on the number of sales, meaning an ASIN that sold 100 units within the past 60 days has 100 times the impact on your IPI than an ASIN with just one sale.
Whatever changes you decide to make, please note that your 4 factors update independently of your overall IPI update. Because these happen separately, it may take a few weeks before your IPI shifts to reflect changes you made to your 4 factors. This is due to the fact that the 4 factors are brief snapshots of your performance at any given time, while IPI is a moving average over a 90 day period.
For more information about the Amazon Inventory Performance Index and inventory storage limits, speak to a member of our Amazon Consulting team at 800-238-1811
