What is IPI (Inventory Performance Index) and Why It Matters

The term IPI (Inventory Performance Index) refers to a composite score that measures how well a seller or warehouse manages inventory across several dimensions. Designed to be beginner-friendly, the IPI brings multiple inventory signals together into one number so teams can quickly understand whether their inventory strategy is healthy or needs attention.

At its core, the IPI balances opposing goals: keeping items in stock so customers can buy them, while avoiding excess inventory that ties up cash and increases storage costs. Many e-commerce platforms and logistics providers present an IPI-like metric to help merchants monitor performance at a glance.

Key components commonly found in IPI calculations include:

• Sell-through rate — how quickly inventory sells relative to the amount on hand. A higher sell-through rate indicates healthy demand and turnover.
• Excess inventory — SKUs that have more stock than reasonable given historical demand. Excess inventory increases carrying costs and risk of obsolescence.
• Stranded inventory — items that are in a warehouse system but unavailable for sale because of listing or compliance issues. Stranded stock can't generate revenue until fixed.
• In-stock rate — how often popular SKUs are available for purchase. Low in-stock rates equal missed sales opportunities and lower customer satisfaction.

Different platforms weight these components differently and may add additional factors. Some IPI implementations are scaled to a 0–1000 range, while others use percentages or 0–100 scores. The important thing for beginners is to treat the IPI as a high-level health check rather than a precise accounting figure.

Why the IPI matters:

• Capacity and fees: Many providers use the IPI to decide if a seller can store more inventory or faces storage limits. Poor IPI scores can trigger restrictions or higher fees.
• Cash flow: Excess or slow-moving inventory ties up capital. Tracking IPI helps prioritize actions to free cash.
• Customer experience: A balanced inventory strategy keeps best-selling items in stock while reducing the chance of canceled orders or late shipments.
• Operational focus: The IPI highlights problem areas—stranded SKUs or excess stock—so teams can fix root causes rather than react to symptoms.

Simple example to illustrate the idea:

• Merchant A has a high in-stock rate but many SKUs that haven’t sold in months—cash is tied up and storage costs are rising.
• Merchant B has excellent sell-through and low excess inventory, but some listings are stranded, causing missed sales.

Both sellers could have similar revenues, yet their IPI scores will differ, signaling where each should focus: Merchant A on clearance and demand stimulation, Merchant B on delisting resolution and relisting to recover sales.

Common beginner-friendly best practices related to improving or maintaining a healthy IPI include:

• Monitor regularly: Check your IPI (or equivalent metric) weekly to catch trends early.
• Resolve stranded inventory quickly: Fix listing errors, update compliance documentation, or relist items so stock can sell.
• Reduce excess stock: Use promotions, bundling, or removal orders for slow-moving items.
• Improve forecasting: Even basic demand planning reduces stockouts and overbuying.
• Use inventory tools: Simple inventory management systems or WMS integrations add visibility and automate alerts.

Common mistakes to avoid:

• Focusing on the IPI number alone without understanding which components are dragging the score down.
• Overreacting to short-term dips—seasonal changes or one-off supply delays can temporarily move the score.
• Neglecting operational fixes like resolving stranded SKUs or updating product data, which are often quick wins.

In summary, IPI (Inventory Performance Index) is a practical, high-level metric that helps merchants and warehouses balance availability and efficiency. For beginners, treat it as a dashboard light: it doesn’t replace detailed KPIs or accounting, but it points to where you should focus time and resources to keep stock working for the business instead of against it.