Case Study: Boosting Inventory Performance Index (IPI) Score and Reducing Storage Costs
- Industry: Home and Kitchen
- Initial IPI Score: 355 (Red Zone)
- Final IPI Score: 426 (Green Zone)
- Duration: 3.5 months
- Improve the Inventory Performance Index (IPI) score.
- Reduce long-term storage fees significantly.
- Optimize stock management to eliminate aging and excess inventory.
- The client’s IPI score was below Amazon required minimuj threshold of 400, indicating poor inventory management.
- High long-term storage fees exceeding $800 per month due to unsold aging inventory.
- Inefficient stock levels of some and excess inventory of other SKUs, causing storage issues and financial strain.
- Assessment:
- Conducted a comprehensive audit of the existing inventory as part of Amazon account health check and management routines.
- Identified aging inventory that needed immediate action.
- Identified slow-moving inventory that was not aging yet, but needed more focus in order to not become aging soon
- Aging Inventory Management:
- Implemented clearance strategies for aging inventory, including discounts and promotions.
- Leveraged Amazon’s advertising tools to boost visibility and sales of slow-moving products.
- Stock Level Optimization:
- Developed a dynamic system to maintain optimal stock levels in FBA.
- Analyzed sales data to forecast demand more accurately, preventing overstocking or stockouts in FBA and streamlining the process of sending goods from 3PL to FBA accordingly.
- Applied data-driven insights to adjust inventory levels in line with seasonality of the products.
- IPI Score Improvement:
- Increased the IPI score from 355 (red zone) to 426 (green zone) within 3.5 months, including:
- Excess inventory was reduced from 30.86% to 5.39%, indicating a significant improvement in stock management.
- The sell-through rate increased from 0.96 to 1.74, showing that inventory turnover was managed more effectively.
- Inventory aged 0-180 days increased from 816 units to 2322 units, reflecting better stock freshness.
- Increased the IPI score from 355 (red zone) to 426 (green zone) within 3.5 months, including:
- Cost Reduction:
- Reduced long-term storage fees nearly 3x per month, resulting in significant cost savings.
- Lowered overall storage costs by optimizing stock levels and removing non-performing inventory.
- Operational Efficiency:
- The sell-through rate increased from 0.96 to 1.74, showing that inventory turnover was managed more effectively and ensuring a healthier cash flow with better stock management.
- Streamlined inventory ordering and restocking processes, leading to more efficient operations and improved profitability
The results indicated a “97% probability that Version B is better, with strong evidence of a positive effect” (direct quote from Amazon experiments).
Why is it important to maintain
the IPI score in the green zone?
A low IPI score may negatively impact overall account health in few ways:
Account
Health:
Poor IPI scores can lead to storage limitations and even account suspension if not addressed, affecting the seller's ability to maintain inventory levels and sales. Storage limitations become even more limiting during higher sales period when a seller needs to send in more products in the anticipation of higher sales in 1-2 months, resulting in a down-ward spiral.
A9
Algorithm:
Amazon’s A9 algorithm considers inventory performance in search rankings. A low IPI score can decrease product visibility, leading to reduced sales.
Extra
fees:
Amazon is imposing extra fees for long-term stock, and they are considering an extra fee also for too little stock some time during 2024.
PPC
Costs:
Inefficient inventory management can lead to increased Pay-Per-Click (PPC) advertising costs. Products that don’t sell well due to poor inventory management require more advertising spend to gain visibility, driving up overall marketing expenses.
Conclusion: Through strategic inventory management, targeted marketing efforts, and effective cost control measures, we successfully transformed the client’s IPI score and financial performance on Amazon, demonstrating the impact of professional Amazon Marketplace consultancy.
Testimonials
Partnering with this team was a game-changer for our Amazon business. Their expertise in Amazon inventory management not only improved our IPI score but also saved us significant costs. We highly recommend their services to any seller looking to optimize their operations.”
Reach Out
If you’re facing similar challenges and want to boost your Amazon performance, get in touch with us today to find out how we can help.
