Oct 28, 2020
The Inventory Performance Index, or IPI, is an essential indicator to know in the management of your inventory. Here are its secrets.
At Bizon, we manage thousands and thousands of products per year. The inventory of our products must be constantly optimized: avoiding under-stocking or, on the contrary, excess is a crucial issue. Whether it is to avoid losing turnover or simply to avoid the dissatisfaction of our stores' customers. Basically, optimization is our core business!
The tools proposed by Amazon are powerful and too unknown. In this article, we give you a complete analysis of the Inventory Performance Index, or IPI.
Did you say IPI?
Absolutely. To summarize, Amazon Seller accounts have a dashboard dedicated to inventory performance. It is called "Inventory Performance". It contains indicators and tips to improve sales.
The main metric of this dashboard is the IPI score. This index is based on a correlation study between sales and inventory to measure the performance of an FBA Seller account.
This index measures, among other things, the Seller's ability to :
🛠 The IPI score is critical, it will directly influence the quantity of units you will be able to ship to Amazon warehouses.
⚠️ Each quarter, Amazon reserves the right to adjust the stock limits of a Seller twice. If a Seller has an IPI score below the threshold determined by Amazon 6 weeks before the end of a quarter, the level of stock that the Seller will be able to ship to Amazon's warehouses will be adjusted downward.
The main criterias taken into account by Amazon's IPI Score
What do you need to watch out for to keep a good score? It's getting more technical. The IPI takes into account four main parameters: the percentage of overstock, the percentage of unsaleable stock, the sales rate and the best sellers storage rate.
1. The percentage of overstocking
Having too much inventory generates a significant cost for the Seller. In calculating the IPI, Amazon first considers the percentage of products identified as surplus.
➡️ Amazon does not specify how this percentage is calculated, but 2 indicators are added to the Seller dashboard:
The second component of the IPI score is the portion of your inventory that does not sell. Amazon estimates that it represents lost sales, storage costs, and your IPI can be revised downwards.
🔎 Underlying Indicator: The number of inactive units in your inventory. The higher it is, the poorer your IPI will be.
The sales rate
This third criterion is determined by the quantity of products you have sold and delivered over the last 90 days. This time, Amazon shares the formulas with you via the following example:
Calculation of the average of the units in stock : (50+40+150+80)/4 = 80 Calculation of the sales rate: 120/80 = 1.5
🔎 Underlying indicator: lost sales over the last 30 days (to summarize, the quantity of lost sales multiplied by the price of the product).
4. The storage rate of best-selling products
Last but not least, this rate is the last parameter taken into account in the calculation of the IPI and highlights the benefits you get from a good inventory management on your best selling products.
Its value corresponds to the percentage of time your replenishments last in stock over the last 30 days, weighted by the number of units sold over the last 60 days.
Here again, the calculation method is known and illustrated by Amazon with the following table:
Storage rate calculation: ∑(% days in stock×velocity)/sum of velocities Therefore: ((2×50)+(3×100))/(2+3)=80%.
🔎 Underlying indicator: lost sales over the last 30 days (equivalent to the quantity of lost sales multiplied by the price of the product).
Our advices as an Amazon Expert Agency
Now, what to do if your IPI Score is low? Here are Bizon's tips to increase your score and find more freedom in your inventory management :
To conclude this article, we will give you a secret: the future of stock management will pass by automation. At Bizon, we are already automating it for our customers, in order to optimize their storage costs and IPI Score.
To put our solutions at your service, contact us!
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