IPI (Inventory Performance Index) vs Other Inventory KPIs: When to Use Each

Beginners often ask how IPI (Inventory Performance Index) fits with traditional inventory KPIs. The short answer: treat IPI as a high-level health score that points to problems, and use specific KPIs to diagnose and measure progress.

This article explains common inventory KPIs, how they differ from IPI, and when to use each metric in everyday warehouse or merchant decisions.

Common inventory KPIs compared to IPI:

• Inventory turnover — Measures how many times inventory cycles through sales in a period (usually a year). High turnover means goods sell quickly; low turnover suggests slow-moving stock. Use turnover when assessing purchasing efficiency and profitability. IPI, by contrast, blends turnover with availability and administrative issues like stranded inventory.
• Days of inventory (DOI) / Days of supply — Expresses the average number of days the current stock will last based on recent demand. It’s useful for planning purchases and cash flow. IPI may reflect DOI indirectly through excess inventory components but does not provide a direct days measure.
• Fill rate — The percentage of customer demand met from stock on hand. It’s a service-level KPI focused on order completeness and customer experience. A low fill rate drives stocking or fulfillment improvements, while IPI will flag related issues through its in-stock component.
• Carrying cost percentage — The annual cost to hold inventory as a percentage of inventory value. This financial KPI helps determine the true cost of excess stock. IPI doesn’t calculate dollars, but a poor IPI often correlates with higher carrying costs.
• Sell-through rate — The percentage of inventory sold within a given period relative to what was received. It’s often a direct input to IPI and useful for promotional planning and SKU rationalization.

When to use IPI vs other KPIs:

• Operational health checks: Use IPI for weekly or monthly operational reviews. It highlights whether inventory policies, listing health, and turnover are in balance.
• Financial planning and budgeting: Rely on carrying cost, DOI, and turnover when making purchasing and financing decisions. These metrics translate directly into cash flow impacts.
• Customer service and fulfillment: Use fill rate and order cycle time to ensure service-level agreements. If fill rate is low and IPI also flags low in-stock rates, you have a clear operational priority.
• SKU-level decision-making: For decisions about pricing, promotions, or discontinuation, use sell-through and DOI at the SKU level. The IPI points you to categories that need detailed SKU analysis.

How to combine IPI with other KPIs in practice:

1. Dashboard integration: Include IPI as a top-line score and surface key KPIs beneath it—turnover, DOI, fill rate, and carrying cost. The IPI leads you to problem areas, and other KPIs explain why they exist.
2. Root-cause drill down: When IPI drops, drill into SKU-level sell-through and stranded inventory reports to find the cause. Use DOI to understand how many days of excess exist.
3. Balanced targets: Set an IPI target for operational health (platform-specific) and financial KPI targets (e.g., turnover > 4x, DOI < 90 days) to balance sales and cash objectives.

Example scenario:

• A merchant’s IPI falls from healthy to poor over two months. The dashboard shows rising excess inventory and a small number of stranded SKUs. Drill-down reveals several slow-moving seasonal items and a batch of SKUs with listing compliance issues. The action plan combines promotions to reduce excess stock, fixes for stranded listings, and revised reorder points for seasonal SKUs. The merchant monitors reversion of IPI alongside DOI and turnover to ensure improvement is sustainable.

Key takeaways for beginners:

• Use IPI (Inventory Performance Index) as a quick operational health signal—check it frequently.
• Use other KPIs like turnover, DOI, and fill rate for detailed planning, financial decisions, and measuring service levels.
• Combine IPI with specific KPIs in a dashboard to diagnose issues and track improvement over time.

In short, IPI gives you the “is there a problem?” answer quickly; other KPIs give you the “what exactly is wrong and how bad is it?” details. Together they provide a complete picture that supports better purchasing, selling, and warehousing decisions.