Right before Amazon’s self-made shopping holiday, Prime Day, and the hustle and bustle of Q4, Amazon has dropped some game-changing announcements that compelled the sellers to make shifts in their inventory management strategies. The email sent to the sellers stated that Amazon has been “preparing early to deliver a great holiday season” to its customers and selling partners. The e-commerce mogul is well aware that this isn’t going to be a normal Q4. Given the unprecedented challenges of COVID-19, everyone, including the retail giant itself, will have to take its preparations up a notch. To meet the sustained demand, Amazon is escalating the fulfillment capacity by adding 33 new fulfillment centers in the U.S., which will ramp up its storage capacity by 35 million cubic feet more than last year. As a part of its strategy, Amazon has also made some adjustments related to inventory and storage, which we breakdown below:
Change 1: IPI Threshold Increase
Here is the first announcement. Effective from August 16, 2020, the optimum IPI score has been increased from 350 to 500. In short, go above 500 or go home. The company in the mail said, “We are working to manage inventory performance to ensure all products have space available during peak. To enable this, we are changing the IPI minimum threshold requirement to 500. Sellers below 500 will be subject to limits effective August 16, 2020, through the end of the year. The majority of sellers will not be impacted by this change. Most sellers with IPI scores below 500 will have more storage space than last year.” Without any further ado, let us refresh your knowledge of the IPI score.
Back to basics: What is IPI?
IPI, also known as Target Inventory Level, is a score used to determine how your FBA business is performing. Introduced in Q2 2018, it was the first step ever taken by Amazon to set a standard on inventory performance. According to Amazon, this brightly colored bar can help sellers know: “how well you drive sales by stocking popular products and efficiently managing on-hand inventory.”
How is it calculated?
IPI is based on a score that ranges from 0 to 500. A score above 550, means your FBA operation is excelling and a score below 450 indicates that there are things you should improve. If your IPI score drops too low, Amazon can limit your storage and charge extra expenses for storage while a higher score translates to unlimited storage space. This score is calculated on the basis of four metrics of inventory management:
FBA sell-through rate: It is the units sold and shipped in the past 90 days divided by the average number of units available at the fulfillment centers at the time. Your FBA sell-through rate is updated daily and it determines the balance between your sales volume and inventory stored in the FBA centers.
FBA in-stock rate: Running out of stock does out affect your IPI score, but the time your products have spent in the Amazon warehouse does. The FBA in-stock rate determines how much value you are getting by keeping your replenishable ASINs in stock. It is calculated by getting the percentage of time your replenishable ASINs have been in stock in the past 30 days. Amazon provides recommendations on which products to restock and when. Staying in stock with the right and good-selling ASINs can help increase your IPI score.
Stranded inventory percentage: This is the inventory stored in the FBA centers that do not have an active offer because of a listing problem (e.g., no image on the listing). Amazon provides all the details in the stranded inventory report and a “Fix Listing” option that can tell you the exact reason why the inventory is stranded. You should check for stranded inventory on a regular basis; if left unchecked, it can cost you a lot.
Excess inventory percentage: These are the not-so-selling inventory that stays in the warehouse for too long. Excess inventory in the FBA centers can decrease your profitability because of the increase in storage costs. It is better to get rid of this inventory by reducing prices or offering discounts because the cost of holding this inventory could be way more than lowering prices.
8 Tips to improve your IPI score:
The best way to stay on the right end of the bar is by proactively managing your inventory performance. Here’s how you can boost your IPI score:
#1: Check check check: First things first, keep a check on your IPI score REGULARLY, so you don’t have any surprises right before the big holidays. If you are too busy for that, ask your Amazon seller consultant to do so.
#2: Get your inventory in order: Purge your stranded, slow-moving and unsellable inventory by reducing prices or creating removal orders. Delete inactive listings, get rid of problematic SKUs, and do all this every week.
#3: Sell what sells: The above step can help you make sure your IPI score does not decrease, now to increase the IPI score, stay in stock for the high selling ASINs.
#4: Focus on your star ASINs: When it comes to inventory, quantity matters. An ASIN that sellers 10 times better will have 10 times more impact on the IPI score. So focus on your best-sellers and boost their performance, so one or two low selling ASINs don’t dramatically affect your IPI.
#5: Identify what matters: Your primary focus should be on improving the sell-through rate and cleaning excess inventory because Amazon isn’t interested in storing inventory that doesn’t sell. Stranded inventory and in-stock inventory should be your second priority. It’s not that they aren’t essential, but if your first two scores stink, your IPI isn’t in any way going to be better.
#6: Ever wondered why your product isn’t selling? On the excess inventory dashboard, there is a dropdown menu in the right row where you can see the recommendations on how to improve performance on that ASIN. It can be anything from editing listings, creating sales, advertising listings with Amazon PPC Advertising, improving Amazon keyword research, or lowering the price. If you take the right actions, you can actually improve the performance of your ASINs without having to create removal orders. Each product is unique and should be handled differently, but the best thing here is that Amazon is giving suggestions to improve your product’s performance.
#7: Don’t wait: As soon as the inventory arrives in your FBA centers, it will have an impact on your sell-through rates. So monitor and plan your shipments accordingly. We would recommend that before shipping any inventory, make sure your listing is ready for the traffic. You can always use our product listing optimization and image editing services to ensure better conversion and sales.
#8: Maybe you missed this: Any archived listing still counts and the listings you convert from FBM will also be taken into consideration, don’t make the mistake of missing them.
#9: Think small: Amazon loves the products that sell in quick bursts so you can ask your supplier to ship in smaller quantities. As your sales start to pace, you can increase the orders. The point here is that, don’t think that Amazon’s FBA centers are your own warehouse. You will have to be extra careful and not having too much inventory is just the right thing to do, especially when your product is just launched.
#10: Consider 3rd party assistance: Inventory management can be overwhelming, especially during tentpole events like Prime Day and Black Friday. But at the same time, it cannot be ignored because it can prove to be a stumbling block to your flourishing Amazon business. Hiring a reputed Amazon seller management firm for inventory/account management would be the right thing to do. You can be free from the hassle of inventory management and there will be someone who will regularly check your IPI score.
Change 2: ASIN Quantity Limits
Amazon wants to maximize product selection during the peak sales period and for that, they are limiting how much inventory you can send to FBA centers. The ASIN-level quantity limits prevent overstocking and make room for a variety of product types. Despite the limits, sellers will have enough space available to store inventory worth three months of sales for each product. The quantity limits can be viewed on the Restock Inventory page and the Restock report. Amazon states that it will continue to review the ASINs and will make adjustments every now and then to ensure space for new products.
Change 3: Free Removal Promotion
Last but not least, Amazon has announced a free removal promotion. “We will waive your fees for any removal order submitted for inventory in our fulfillment centers beginning July 14, 2020.” Sellers are always in a dilemma whether they should pay storage fees for excess/stranded inventory or create a removal order to pay removal fees. With this announcement, the retail giant has made the decision process a whole lot easier. This change will help sellers get rid of slow-moving inventory without having to pay steep storage fees or removal fees. Amazon said that the promotion is available only for a limited time, but it has not specified the end date. So it is best that you take advantage of it while it’s free. However, we anticipate that the promotion will last till the end of Q4. To create removal orders, you can go to Inventory Age and choose to Create a removal order from the menu next to any FBA item in your inventory.
It’s time to put your inventory management caps on!
Remember one thing: Amazon wants to sell the products, not stock them. With these announcements, the e-commerce behemoth has made it clear that it won’t tolerate slow-moving inventory, especially when super busy days are ahead. Although Amazon has mostly recovered from the fulfillment issues it had during the worst months of the pandemic, it still wants to avoid any potential problems that could interfere with its operation in the holiday season. These changes have also forced the sellers to plan ahead their shipments and take actions that can benefit their sales.
Prep now to prosper later
It’s never too early to start; after all, Amazon began 4 months prior. Get your inventory in order, prepare your listing for the upcoming traffic with our Amazon EBC design and Product Listing Optimization services and make sure you are ready for the “new-normal” Q4 in full swing. You can also hire our Amazon Consultant to make sure your listings are optimized for better search and conversion.