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What is Amazon’s Inventory Performance Index & How Is It Calculated?

July 13, 2020 in Blog
What is Amazon’s Inventory Performance Index & How Is It Calculated?

What is Amazon's Inventory Performance Index & How Is It Calculated?

Update: July 13, 2020: Amazon announced that effective August 16, 2020 until the end of the year, the threshold is moving to 500 (up from 400). 

One of the biggest changes Amazon recently introduced to its fee structure is something called the Inventory Performance Index (IPI). What exactly is the IPI, how is it calculated, and what are the consequences if you have a poor IPI? In this article we’ll assess all of these things.

Related Podcast: Episode 151: Amazon News Including Inventory Performance Index, Boost, and More.

What is Inventory Performance Index?

The Inventory Performance Index (IPI) is a score Amazon assesses to determine how well sellers are managing their inventory. You can score between 0 and 1000.

Amazon Inventory Performance Index

As with many of Amazon’s decisions for sellers, the IPI seems to largely revolve around Amazon’s overflowing warehouses and trying to get sellers to better optimize their inventory.

You can see your current score in your Inventory Dashboard within Seller Central.

How is the IPI Calculated?

The most frustrating thing about the IPI is that Amazon refuses to comment on how it is calculated. When asked how the IPI is calculated, Amazon responded “The calculation is proprietary and will not be published, just as we do not publish the Buy Box algorithm.” Amazon gives a very non-helpful explanation of how to improve your IPI as followsThe 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.

Currently though Amazon says there are four factors that affect your IPI:

  • Reducing excess inventory to increase profitability
  • Increasing sell-through to balance your inventory weeks of cover
  • Ensuring inventory is buyable by fixing listings that are stranded
  • Increasing sales by keeping popular items in stock.

However, only the first three points are factors as Amazon has gone on the record as saying “IPI points are not deducted for running out of stock”. Furthermore, stranded inventory will affect your IPI score but it’s an easy fix. So, in other words, the key factors in improving your IPI is to avoid having over-stockages at Amazon and improving your sell through rate. To the last point, Amazon calculates your sell through rate as follows:

Sell through rate = Units sold/shipped over the past 90 days/average number of units available at fulfillment centers of the past 90 days.

So, for example, if you sold 100 units over the last 90 days and had an average of 200 units in stock during that time your average sell through rate would be 0.5. My other sneaking suspicion is that Amazon heavily punishes products with zero sales over 90 days.

Within Seller Central there is a dashboard with all of your key performance metrics.

You can see a dashboard with all of our keymetrics by going to sellercentral.amazon.com/inventory-performance/dashboard/ (login required).

Your IPI score is typically calculated weekly on Monday.

What are the punishments for a bad IPI Score?

The punishments for a poor IPI score (below 400) is inventory storage restrictions and higher storage fees ($10/CFT to be exact).

Amazon does not disclose how much your inventory storage limits will be until you fall below an IPI of 400 but in the one instance our account did fall below the threshold (previously 350) we had potential storage limits of roughly 5x our current storage. In this case, the storage limits would not have been very punitive; I’ve heard of cases when storage limits were very prohibitive.

amazon inventory storage limits

You can see your current storage limits and potential storage limits at the bottom of any shipments planning window.

storage limits

Amazon calculates your IPI each quarter (March 31, June 30, September 30, and December 31) and also 6 weeks prior to the quarter’s end. If it’s below 400 either at the quarter’s end AND 6 weeks prior then you get penalized. So, for example, if on May 19 (6 weeks prior to June 30) you have a score of 401 but on June 30 you have a score of 0, you will not be penalized. Likewise, if you on May 19 you have a score of 0 but on June 30 you have a score of 401, you will not be penalized. You basically get one free ride. It’s a bit confusing but hopefully that makes sense.

IPI Only Applies to Amazon.com (for the Time Being)

As far as I know, the Inventory Performance Index only currently applies to Amazon.com sales and not any other marketplaces. This isn’t surprising as Amazon is trying to aggressively grow into other market places and these foreign warehouses aren’t facing the same capacity problems that U.S. warehouses are.

What Should You Do?

As the algorithm used to calculate IPI is a mystery, we can only hypothesize some firm action steps you can take to avoid being penalized by a poor IPI:

  • Look at your IPI score now
  • Make sure you have an IPI above 400 either at the quarter’s end or 6 weeks prior
  • Better utilize 3PLs for storage and increase the frequency of sending inbound shipments into Amazon
  • Fix stranded inventory immediately
  • Remove excess inventory
  • Mark discontinued products and products you’re no longer selling as non-replenishable
  • Create shipments in advance if you think you will fall below 400 for both reporting periods

If you’ve stopped selling an item, mark the items as non-replenishable. To do so, go to your Restock Inventory page, select the non-replenishable items and click “Hide alerts”. This will improve your in-stock rate which will not “officially” help your IPI score but it does make the data on your IPI dashboard more meaningful.

replenish inventory alerts amazon

To this last point, one current workaround to the IPI is to create shipments in advance. When you have restrictions placed on your account it will affect your ability to create inbound shipments. However, as long as those shipments are already created, you can send in that inventory.

Conclusion

The Inventory Performance Index is still a relative mystery for Amazon Sellers. Over the next several weeks, especially as June 30 inches closer (the first rollout of penalties), we should have a clearer picture of the most important factors in determining your IPI as well as the potential penalties for having a poor IPI.

  • About The Author: Dave Bryant

    Dave Bryant has been importing from China for over 10 years and has started numerous product brands. He sold his multi-million dollar ecommerce business in 2016 and create another 7-figure business within 18 months. He's also a former Amazon warehouse employee of one week.

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4 Comments

  • alice wilson
    October 29, 2019 Reply

    Really Amazon is trying to aggressively grow Thanks for sharing this by reading this article I got the idea how of how to calculate inventory performance index.

    • Dave Bryant
      October 30, 2019 Reply

      Glad it helped :)

  • Michael Simpson
    July 31, 2020 Reply

    One idea I've heard is that is is influenced by how profitable your products are per cubic foot. It would make sense for Amazon to favor sellers with small fast-selling products vs Large slow-selling products. I.e. $50 cell phone cases that are 0.02 cubic feet vs a $15 plastic drawer set that is 2 cubic feet. The former will allow Amazon to make much more money per cubic foot of storage area. Some sellers have shown screenshots with terrible metrics per the four categories Amazon measures, but still have very high IPI scores. Others have great looking metrics but low IPI scores.

    • Dave Bryant
      August 18, 2020 Reply

      Yes! I've heard this as well.

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