Your Guide Through Amazon’s Inventory Performance Index (Plus Tips On How To Improve It)

Due to the fact that the majority startups and small businesses lack the experience to handle the complex infrastructure consisting of tasks such as packing and delivery, more and more of them are turning towards the trend known as FBA (the fulfillment by Amazon). The simplest way to describe this would be to say that it’s the pinnacle of the drop shipping business model.

This means that the Amazon may pick, pack and ship products to your customers on their own and all that you have to do is put them up in a store. Nonetheless, even your FBA business could stand to get some improvement and one of the things you can do is improve your inventory performance index (IPI). Here are several things you should know about it.

What is the IPI?

Before we can even start talking about methods to improve your IPI, we first need to settle, once and for all, what the IPI actually stands for. The simplest way to explain this is to say that this is a metric for tracking the health of your inventory on Amazon. It’s expressed in a score between 0 and 1,000 and the higher you score the better.

The first major factor influencing it is the excess inventory – which can increase your overhead in terms of storage costs. The second factor is the in-stock inventory – which determines your ability to meet the needs of your clients and avoid an opportunity loss that comes from the lack of supply. Lastly, there’s the stranded inventory – a factor determining whether your inventory is available for actual purchase and delivery.

What counts as an acceptable IPI score?

The second thing you need to understand is the concept of a good IPI score. Naturally, the higher you score, the better, however, the most important figure on this imaginary line is placed at 350. Everything below 350 is considered as inadequate and Amazon even goes ahead to penalize all those who allow their IPI to fall this low. As for the penalty itself, it varies on several factors, ranging from a fine on excess inventory, all the way to the platform actively limiting your ability to sell items.

If your IPI score starts rapidly declining, there are several measures that can give you a quick boost. Diversifying your inventory, removing dead inventory or drastically cutting down prices on aged inventory are just some of your options. Once you get this out of the way, you need to start being more selective about what you put in your inventory, in order not to repeat the same mistake. These are just some of the ways in which adopting efficient trends and innovating can help grow your business.

How To Improve Your IPI Score

#1 Optimal User-Friendliness

Like Google, Amazon changes its algorithm with time, which means that future-proofing your presence on either of these platforms never tends to be 100% reliable. One thing worth knowing, though, is that this always moves in the same direction, user-friendliness. This comes as no surprise, seeing as how Amazon is an incredibly customer-centric company. This means that an investment in customer experience never seems to be a bad move. Improving the flow of your inventory is one of the fields that could benefit your overall system the most. Nonetheless, it’s important that you understand that this flow isn’t a one-way stream, which is why you should also look for a specialized tool for FBA reimbursements for damaged inventory.

#2 The Significance Of Inventory Turns

A crucial factor that you need to understand when it comes to improving your IPI is the significance of inventory turns ratio. First of all, you need to understand that this is calculated in a simple equation where the amount of sold units gets divided by the average number of units in stock for the year. This is particularly interesting due to the fact that it gives an ironically reciprocal causality to your sales and your IPI, where your high IPI boosts your sales and your sales boost your IPI. In other words, your IPI can be slightly improved by an action as simple as adopting a new listing strategy.

#3 Consider Amazon Launchpad

The next thing worth considering is the so-called Amazon Launchpad. In the introduction, we mentioned the FBA, which is, more or less, partnering Amazon in order to sell your products. It goes without saying that Amazon as a marketplace favors their partners, which is why Premium members, usually get preferential treatment over independent agents on the platform. A similar thing may take place for those who decide to use Amazon Launchpad, which is a cutting-edge technology that helps with sales of physical products. As of lately, it’s one of the most popular Amazon features amongst startups, due to the fact that it gives them a much more efficient way of showcasing their products.

#4 A Lack Of IPI Score

At the very end, it’s important that we mention that you won’t automatically get an IPI score as soon as you register for the FBA. In fact, there are two criterions that you have to pass in order to get there. First, you need to have an actual inventory at very least six weeks before the end of the quarter. Second, you need to have an inventory performance index on the last day of the current quarter. Failure to do so will result in your startup getting assigned a default storage limit, which can set you back substantially.

Conclusion

If you were to handle a traditional business, you would be evaluated on your efficiency every step of the way. With FBA, most of your infrastructural and logistical responsibilities would be handled by someone else, which means that you would be able to completely dedicate yourself to a better management of your inventory. Simply put, this is what IPI is all about.

 

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