Amazon recently announced plans to increase FBA fees and charge long-term storage fees on a monthly basis rather than twice a year. At the same time, Amazon also revealed its intention to limit storage for sellers with a low Inventory Performance Index effective from 1 July 2018. This blog investigates Amazon’s newest seller metric further and what it means for Professional FBA sellers.
What is the Inventory Performance Index?
The Inventory Performance Index is Amazon’s first step in setting a standard on inventory performance.
According to Amazon:
Amazon states the metric is based on “how well you drive sales by stocking popular products and efficiently managing on-hand inventory”.
Scores range from zero to 1,000. A score above 400 indicates that your business is excelling whilst a score below 350 indicates that there are issues and you should take action to improve your score.
Amazon has not revealed exactly how IPI scores are calculated.
From 1 July 2018, Amazon may limit access to storage for sellers with an Inventory Performance Index below 350. Sellers who maintain an index score of 350 or greater will have unlimited storage for standard size and oversized items.
FBA seller and blogger, Stephen Smotherman discusses what the Amazon FBA Inventory Performance Index metric is further in the video below.
Inventory Performance Dashboard
On the Inventory Performance Dashboard, Amazon provides sellers with three specific steps to increase their score.
- Excess Inventory suggestions to reduce your storage fees and carrying costs.
- Restock recommendations to increase your in-stock rate.
- Stranded Inventory actions to ensure your inventory is available for purchase.
Here’s a sample of what it looks like in Seller Central with many commenting on the similarity to a credit score rating.
The Inventory Performance Index is a big change in how Amazon normally displays reporting information. It uses bright colours and offers suggestions for improvements in reducing fees and managing excess inventory.
Amazon will also show you how you compare with other sellers.
Image credit: Amazon
Inventory Performance Index Factors
The new metric has three top influencing factors:
1. Excess inventory and sell-through
The number of units for which the cost of holding your inventory would likely be more than the cost of taking action (such as reducing prices to increase sell-through or removing excess units). This value is based on product demand and your costs (including fees, unit costs, and cost of capital inputs).
Amazon offers a Manage Excess Inventory tool that helps sellers identify listings that may have excess inventory levels and provides data to help them get a better return on their investment.
To improve your excess inventory performance, you need to ensure you don’t send too many units at one time to Amazon ASINs that sell slowly. You also need to monitor your inventory age to avoid potential FBA long-term storage fees.
This is where an automated repricing tool really comes in handy.
2. In-stock inventory
This is the percentage of time your ASINs have been in stock during the last 30 days, weighted by the number of units sold for each SKU in the last 60 days.
Amazon provides recommendations on what to restock and when. While staying in stock with the right ASIN can help increase a seller’s Inventory Performance Index, there is no penalty for not restocking a discontinued or non-replenishable item.
Seller tip: You can improve this metric by hiding recommendations on the “Restock Inventory” tab.
Although, deleting and closing inactive listings on a regular basis won’t improve this metric, it is considered good inventory management practice.
3. Stranded inventory
This is when products that are in Amazon’s fulfilment centres but are not available for purchase due to a listing problem. You should check for stranded inventory on a regular basis as you may need to edit a listing or create a removal order.
Why is Amazon making this policy change?
We are adjusting our FBA storage fees and policies to encourage improved inventory management, which will help your products be received and delivered to customers more quickly.
What is IPI based on?
Your score is based on how well you maintain healthy inventory levels, fix listing problems, and drive sales. We calculate your Inventory Performance Index for you.
What happens to my storage limits if I don’t have an IPI score yet?
In order for the new storage limit adjustment cycle to apply, you must have an Inventory Performance Index both six weeks before the end of the current quarter and on the last day of the current quarter. If you do not have an index score on either of these dates, you will receive the default storage limits. We will provide additional details on these default storage limits before they take effect on July 1, 2018.
The Inventory Performance Index scores sellers’ performances based on how well they maintain healthy inventory levels, keep products in stock and fix listing problems.
You should keep an eye on your Amazon Inventory Dashboard regularly to prevent potential lost sales and implement any of the suggestions Amazon offers you in terms of what you can do better.
If a seller makes a habit of sending in inventory that doesn’t sell quickly, Amazon will find a way to encourage the seller to remove that inventory from their warehouses, whether by imposing storage limits or storage fees.
Essentially, Amazon wants you to sell more and store less. It wants sellers to see it as a fulfilment centre rather than a warehouse.