Amazon recently announced that they were raising the minimum Inventory Performance Index score from 350 to 400, effective January 1, 2020.
What do New Inventory Score Requirements Mean for Amazon sellers?
Back in 2018, Amazon implemented an algorithm-driven Inventory Performance Index (IPI) scoring system. (You may see this called Inventory Performance Score or just Inventory Score.) Amazon uses this algorithm to determine how quickly a seller’s inventory is moving through their system from fulfillment center to customer. They then assign each seller a numerical score. Why? Because Amazon doesn’t want inventory to sit in their fulfillment centers and collect dust, of course. They want it to sell!
With IPI, the higher the score the better. If your score is 550 or higher – congrats, your inventory is a top performer! But as of January 1, 2020, if your inventory score is lower than 400, you could face penalties such as:
- Limited cubic feet of storage in Amazon fulfillment centers
- Overage fees
Many sellers, especially those who sell oversized items, are understandably stressed about this change. For any seller, limited storage space could also mean a limited chance to send new products into FBA and, ultimately, to grow.
However, Amazon’s new inventory performance score requirements can also mean a chance to make lemonade out of lemons. Read on to find out our recommendations.
But first, let’s dig into IPI score a little more.
How does Amazon calculate your Inventory Score?
Amazon measures each seller’s IPI once per week. IPI consists of four categories, and sellers can use that information to makes changes that will increase their scores.
The four categories are:
- Excess inventory percentage
- FBA sell-through
- Stranded inventory percentage
- FBA in-stock rate
The report also provides tips on increasing your score.
When your Amazon Inventory Score Matters
Despite providing you with an updated inventory score every week, your score only truly matters to Amazon on two days per quarter.
The first is the date about 6 weeks before the end of the quarter. So, for Q4 2019, that date would fall around November 15,2019. On this date, Amazon will test your inventory. If you “fail” the test, they will send you a 6-week warning to improve your score or be subject to FBA limitations next quarter.
The second day is the last day of the quarter. If you pass the test on either day, you are all good. But if you fail the test on the last day of the quarter, you will be subject to limitations the next quarter. Should you find yourself the unfortunate victim of Amazon’s IPI algorithm, you goal should be to improve your inventory performance score to remove the restrictions!
My Amazon Inventory Performance Score is too Low. Now What?
First, don’t panic! A six-week warning message is a wakeup call, but it gives you time to make changes.
Next, review the IPI dashboard in your Seller Central account to explore the underlying issues.
If the issue is excessive inventory:
You might consider housing some product with a 3PL or smaller warehouse. At Seller Accountant, we rarely see this issue affecting seller scores.
If the issue is FBA sell-through:
This issue can be tricky. Clicking the button will reveal which SKUs Amazon is warning you about.
However, especially in Q4, the potential danger here may be inflated because you sent in a large number of items for Black Friday and the holiday season. If that’s the case, you may want to wait and continue to monitor your score without doing anything differently.
On the other hand, if you notice older or lower performing SKUs on the list, it may be time for action. Consider adding advertising or keyword optimization to these listings. In the worst-case scenario, if the listings simply are selling, consider liquidating these SKUS and trying again.
If the issue is stranded inventory:
At Seller Accountant, we generally do not see this issue. However, if you do have stranded inventory, you generally just need to provide some information or make a specific correction. This one can be low-hanging fruit and a reminder why it’s so important to keep a close eye on your Amazon inventory.
If the issue is FBA in-stock rate:
In-stock rate goes hand-in-hand with sell-through rate. While Amazon doesn’t want you to store too much slow-moving inventory, they – of course – don’t want to see you stock out!
If you’re having trouble walking this thin tightrope, consider smaller but more frequent shipments to Amazon. Perhaps store excess inventory in a warehouse or 3PL rather than Amazon.
At the end of the day, Amazon is in the business of moving products. With the Inventory Performance Index, they are training sellers to send in just the right amount of inventory their algorithms predict will meet demand without overcrowding their massive fulfillment center network. While Amazon’s frequent changes can be stressful, they can also help you create a leaner, meaner business model.
Do you have questions about your Amazon inventory performance? Sign up for a free Amazon accounting consultation today.