Common IPI (Inventory Performance Index) Mistakes and How to Avoid Them

Working with the IPI (Inventory Performance Index) can deliver clear benefits, but teams often make predictable mistakes that limit results. This friendly, beginner-level guide outlines common errors, explains why they matter, and offers practical ways to avoid them so your IPI improvements stick.

Mistake 1 — Treating IPI as the only metric that matters

Why it’s a problem

IPI is a composite score. Relying solely on a single number can obscure important trade-offs: for example, an aggressive promotion may boost sell-through (raising IPI) but erode margin or cause stockouts for higher-margin products.

How to avoid it

Use IPI alongside complementary KPIs like gross margin, days of inventory on hand (DOH), inventory turnover, and customer service metrics. A balanced scorecard helps you weigh trade-offs and make decisions aligned with profitability.

Mistake 2 — Failing to drill down into component drivers

Why it’s a problem

A falling IPI doesn’t reveal whether the issue is excess stock, stranded inventory, or poor forecasting. Acting on the wrong assumption wastes effort and may worsen the situation.

How to avoid it

Always investigate the IPI components. Identify top SKUs affecting the score, and trace which metric (e.g., sell-through vs. stranded) is responsible. Then apply focused remediation.

Mistake 3 — Overreacting with large removals

Why it’s a problem

Removing inventory en masse can reduce IPI quickly but may also lead to lost future sales if product demand returns. Unplanned removals often incur disposal or return fees and logistical costs.

How to avoid it

Evaluate the cost-benefit of removals. Try promotions, bundling, or transferred channels first. Reserve removals for truly non-performing or obsolete stock.

Mistake 4 — Using overly conservative safety stock

Why it’s a problem

Generous safety stock can prevent stockouts but reduces sell-through rates and increases carrying costs, both of which can drag down IPI.

How to avoid it

Calculate safety stock based on demand variability and supplier lead-time variability. Review safety stock regularly and adjust based on improved supplier reliability or improved forecasting.

Mistake 5 — Letting listing or data errors persist

Why it’s a problem: Stranded inventory due to incorrect listings, missing barcodes, or compliance issues is a common but avoidable cause of low IPI.

How to avoid it: Implement inbound checklists and periodic audits. Automate alerts for listings flagged as suppressed or units marked unfulfillable. Assign ownership for data quality to prevent drift.

Mistake 6 — Ignoring seasonality and launches

Why it’s a problem

Seasonal products and new launches often have different demand curves. Treating them the same as steady-state SKUs results in overstock or stockouts at critical times.

How to avoid it

Use seasonal planning and separate inventory strategies for launches (e.g., conservative initial buy, rapid replenishment, or limited-time promos) versus evergreen products.

Mistake 7 — Not integrating IPI into operations

Why it’s a problem

If IPI is a monthly report that leadership reviews but warehouse teams never see, corrective actions can be slow or inconsistent.

How to avoid it

Embed IPI metrics into daily or weekly operational dashboards, and create clear owner responsibilities. For example, assign a category manager to own slow-moving SKU remediation and a receiving supervisor to prevent stranded inventory.

Troubleshooting common scenarios

• Sudden IPI drop after a promotion: Check whether promotions caused overselling of certain SKUs or created stockouts elsewhere. Rebalance by adjusting replenishment cadence and reviewing promotion targets.
• IPI affected by a few large SKUs: Large or high-value SKUs can disproportionately impact the index. Monitor value-weighted and unit-weighted IPI components separately to avoid misinterpretation.
• Persistent stranded inventory: Set up automated workflows for rapid investigation (e.g., a daily report that lists stranded units with suggested fixes).

IPI vs other inventory metrics — a quick guide

• IPI — Composite index focused on inventory health and space efficiency; great for operational prioritization.
• Inventory turnover — Measures how many times inventory is sold and replaced over a period; useful for long-term procurement and assortment planning.
• Days of inventory on hand (DOH) — Estimates how many days current inventory will last at current sales rates; useful for liquidity and working capital management.
• Service level / in-stock rate — Tracks availability for customers; critical for customer satisfaction and often a component of IPI.

Use IPI as your operational compass, but reference turnover and DOH for strategic planning. For example, a company might use IPI to fix weekly problems that free up warehouse capacity, while using inventory turnover to shape annual purchasing strategies.

Final advice for beginners

Keep the approach pragmatic. Start with weekly IPI checks, fix the obvious data and stranded issues first, run targeted promotions to clear the worst excess, and gradually improve forecasting. Document what works and convert successful interventions into standard operating procedures so improvements become repeatable.

By avoiding these common mistakes and combining IPI with other inventory metrics and sensible operational practices, you’ll make steady, sustainable improvements to inventory efficiency, reduce carrying costs, and improve customer experience.