What is Inventory Days of Supply?
This metric calculates the number of days that inventory will last at the current demand rate.
How to calculate Inventory Days of Supply?
Inventory Days of Supply = (Total Inventory / Cost of Goods Sold) * 365
What is the business impact of Inventory Days of Supply?
A high days of supply indicates overstocking, tying up capital, while low days of supply might lead to stock-outs.
Industry benchmark for Inventory Days of Supply
In order to efficiently manage inventories and balance idle stock with being understocked, many companies aim to have 30-50 days as the Days Supply of Inventory.
How to improve Inventory Days of Supply?
- Improve sales forecasting accuracy to avoid situations of overstocking.
- Implement Just-In-Time (JIT) inventory to minimize the lead between receipt and dispatch of inventory.
- Adopt a continuous review system for stock replenishment instead of a periodic review system.