How fair is the Inventory Performance Index Matrix for FBA Seller?

A few months ago, Amazon introduced a new FBA seller Inventory Performance Index (IPI) which they believed could help FBA seller gauge their overall inventory performance which would eventually lead to reduced costs, improve profitability, and more business growth. Under this index, the seller can view their inventory performance from a scale of 0 – 1000, with 350 being a borderline to be eligible for unlimited storage and avoiding long term storage fees.

Amazon seller's Inventory Performance Index (IPI) score.
Amazon seller’s Inventory Performance Index (IPI) score

The Inventory Performance Index (IPI) accounts for four categories of recommendations: 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; and increasing sales by keeping favorite items in stock. The IPI dashboard displays a performance bar for each of the four categories. It is essential that the seller maintains the minimum threshold to avoid getting the exorbitant fees charged by Amazon.  On 15th of every month, Amazon sweeps through the data of all sellers and if any seller has a score of less than 350, is removed from the privilege of unlimited storage along with bearing the long term storage charges.

The major drawback of this IPI is that it combines the past three months of sales, inventory levels, and costs into a single rolling metric that is updated weekly.  In this case, when an out of stock inventory is replenished, it affects the sell-through score drastically. No way will this matrix take into account the current sales which will further lower the score since these replenished units will be accounted as excess inventory. So if the seller has failed to restock the inventory immediately, it will cause the score to run downhill every week until it reaches the benchmark score that amazon desires. If during that time, the score does not meet the threshold of 350, the seller will end up with storage restrictions and long term storage charges.

Another issue is the “Out of stock” matrix. Amazon accounts for the inventory that the seller does not want to replenish. If a listing has been inactive for long, the matrix will still consider it out of stock and affect you “in stock” score. However, a seller can improve this metric by hiding recommendations under the “Restock Inventory” tab.

Amazon seller's Inventory Performance Index (IPI) score details
Amazon seller’s Inventory Performance Index (IPI) score details

The IPI, although built to guide the sellers in maintaining the inventory, it has its drawbacks that can be costly for the seller in circumstances where the inventory remains out of stock for a while. Given the new quarterly inventory storage clean up by Amazon, sellers are forced to maintain limited inventory to avoid long term charges or opt for removals monthly, which can get expensive.

To conclude, it’s best that the seller keep a watch on their IPI score and take it seriously. Ignoring IPI can have a significant impact on the seller’s privilege for unlimited storage and incur exorbitant long term storage charges

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