Reasonable inventory is the basis for the efficient operation of Amazon logistics. Amazon will not allow sellers to hold unlimited inventory. Even if sellers are willing to do so, Amazon will not allow it. This is because once a large amount of unsalable inventory appears, it will greatly affect the inventory turnover rate, and hot-selling products cannot enter the warehouse, and unsalable products occupy the position. Amazon will give a corresponding quarterly Inventory Performance Index (IPI) score for each FBA seller. We can log in to the Amazon seller backend and view the IPI score and various inventory performance indicators in “Inventory → Inventory Planning → Performance”. Sellers with an IPI score of 350 or higher will be able to enjoy unlimited inventory capacity in standard size products, large products, clothing and footwear categories.
If the IPI score is less than 350, the seller will be subject to FBA inventory restrictions. Specifically, Amazon will review the IPI score twice each quarter: (a) the sixth week before the current quarter and (b) the last week of the current quarter. If the seller’s IPI score is lower than 350 when reviewed in the sixth week before (a) the current quarter, Amazon will send an email to remind the seller of the storage restrictions that may be faced. Sellers can use the remaining six weeks of the current quarter to adjust their inventory status and improve their IPI scores. If the seller’s IPI score improves and is higher than 350 when reviewed in the last week of (b) the current quarter, the seller will not be subject to storage restrictions. However, if the seller’s IPI score is still lower than 350 when reviewed in the last week of (b) the current quarter, Amazon will send another email to inform the seller of the storage restrictions that will be faced in the next quarter.
The four factors that affect the IPI score include the percentage of excess inventory, the Amazon Logistics sold rate, the percentage of Amazon inventory with no sales information, and the Amazon Logistics inventory rate.
The IPI score will be updated once a week based on the seller’s daily inventory management. There are three ways to improve the IPI score.
1. Reduce excess inventory
The percentage of excess inventory is an assessment of the excess inventory in the past 90 days. Excessive inventory will affect the seller’s profits. Take the measures provided on the “Manage Excess Inventory” page to reduce storage fees and storage costs.
2. Improve Sell-through Rate
Sales volume is an assessment of inventory sold in the past 90 days. Product volume and sales volume need to be balanced to avoid inventory redundancy. Sellers can take the measures provided on the “Inventory Age” page to improve the sell-through rate of Amazon Logistics (FBA) products with low traffic and low conversion rate products.
3. Fix product information
The percentage of unsalable inventory with no sales information is an assessment of the product inventory that cannot be sold due to problems with the product information on the Amazon front page. We need to fix the product information problem to make the product available for sale, and take the measures provided on the “Fix Amazon Inventory with No Sales Information” page to ensure that the seller’s inventory is in a purchaseable state.
The best way to improve IPI scores and minimize Amazon Logistics storage fees is to reduce redundant or slow-moving inventory and keep inventory turnover at a lean level, while ensuring that there is enough FBA product inventory to minimize sales losses. In addition, sellers can also improve their IPI scores by conducting promotional activities, creating removal orders, advertising products, improving search keywords, and optimizing product information.
In 2020, in order to speed up inventory turnover and improve efficiency, Amazon US has raised the threshold score of IPI from 350 to 400 points. The new policy will take effect on January 1, 2020.
The threshold score of IPI will definitely not be a constant value. Amazon will definitely adjust the threshold score of IPI at any time according to the actual situation of the FBA warehouse. For example, in July 2020, due to the worsening impact of the new crown pneumonia epidemic, the logistics capacity of Amazon US was tight. In order to reduce inventory and distribution pressure, Amazon US raised the threshold score of IPI to 500 points. Only when the standard of 500 points is reached can sellers enjoy unlimited inventory capacity.
In addition, readers also need to note that in addition to the storage restrictions mentioned above, Amazon FBA also has a replenishment restriction. Replenishment restrictions and storage restrictions are two completely different concepts and are independent of inventory performance indicators. Specifically, storage limits are measured in cubic meters, indicating the total amount of inventory that sellers can store in Amazon’s fulfillment centers, while replenishment limits determine the number of inventory items that sellers can send to fulfillment centers and are set for different storage types (e.g., categorizable items, large items, clothing, and footwear). They are based on sellers’ historical and forecasted sales. For example, for a single product, the replenishment limit will only be gradually lifted if it sells better and the sales rate is faster. Otherwise, Amazon will impose replenishment limits on individual products. For some single products that are poorly sold and may be unsalable, replenishment limits can prevent sellers from sending too much inventory to Amazon warehouses, causing a large amount of inventory backlogs.