Inventory Days on Hand: How to Calculate & Why

For a retail outlet with an average of 5000 SKUs, the probability of predicting demands and making the right decision without technology is definitely tough for employees who are on a routine. One of the most distinct solutions for predicting and procuring with a consumer-centric approach can be achieved only when you allow ‘decisions to be driven by technology. Ideally, with technology, you can track, forecast, plan and automate the activities like daily reordering, transfer in-out, and control out of stock with ease backed by analysis. Note that ‘Inventory turnover ratio’ is the inverse of Inventory days on hand.

The Impact of DOH on Business Operations

Ware2Go’s supply chain expert, Matthew Reid, offers some in-depth insights on supply chain planning to avoid slow-moving inventory in the video below. Returning to the example above, if days on hand you sold through your inventory 5 times in the past year, you would just divide 365 by 5. Your DOH is 15, which means it takes 15 days for you to sell your inventory.

Method 2: Days in the Accounting Period / Inventory Turnover Ratio

Inventory days on hand (also called ‘days of inventory on hand’) is a measure of how much time is needed for a business to exhaust a lot of inventory on average. By knowing the current and exact value of inventory days on hand, a business can reduce its ‘stockout days.’ The lower the number of inventory days on hand, the better it is for the company. Inventory days are the average number of days a business holds its inventory before selling it. They are also referred to as days in inventory, days inventory outstanding, or days sales inventory. It determines inventory efficiency and liquidity by displaying how long funds are held in inventory. By leveraging  Inventory Source’s industry-leading SLAs, merchants gain peace of mind knowing that they are making informed decisions about procurement.

You conclude that you’ll see an average sales increase of 50% through November and December. To answer that question, let’s examine some ways we can apply this metric to create an inventory strategy that meets demand without reducing profits excessively. May lead to difficulties in meeting sudden increases in demand due to slower inventory turnover. Divide the average inventory by the COGS and multiply the result by 365 (or the number of days in the considered period). This can be done by adding the beginning and ending inventory values and dividing the sum by 2.

Fewer stockouts

For example, non-durable goods companies such as food require low DOH; otherwise, their costs can swell due to many spoiled or rotting goods. On the other hand, durable goods companies may still tolerate a higher DOH. Alix delights in finding ways to deliver actionable insights to retailers and restaurateurs. When not cooking up data-driven blogs with valuable tricks and tips, Alix is on the hunt for new ways Lightspeed can help entrepreneurs bring their cities to life. Just click the product, head to the variant section and specify the reorder point and re-order quantity you’d like for that item. So you’ve crunched the numbers and you feel your inventory DOH is too high.

• Ideally, you want to have enough stock for 30–60 days’ worth of inventory.
• Your DOH is 15, which means it takes 15 days for you to sell your inventory.
• Retail markdowns help you shift stock––improving your DOH and lowering holding costs.
• Identify your key inventory vendors and work with them to streamline procurement processes, reduce lead times and improve order accuracy.
• It’s time to combine these two metrics to determine how quickly your products are being sold and accurately predict future inventory levels.

Decrease Inventory Carry Costs

By applying this metric, you’re able to order enough inventory to address increased demand without overspending. Since the cost of each SKU is $10.00, you can also determine the average inventory value by multiplying 750 x 10, which comes up to $7,500. It is essential to compare the DIO of a company with industry benchmarks and historical data to gain a better understanding of its performance.

• If your business doesn’t have an accurate DOH number, it won’t be able to easily adjust to the ebbs and flows of demand throughout the year.
• The days of inventory on hand (also called Days Inventory Outstanding) is one of the key performance indicators that measures the number of days it takes to sell the inventory.
• As you can see there is a heavy focus on financial modeling, finance, Excel, business valuation, budgeting/forecasting, PowerPoint presentations, accounting and business strategy.
• We employ cutting edge warehouse management systems that provide clear insights into metrics like inventory days on hand.
• It helps businesses evaluate their inventory management efficiency and make informed decisions regarding stock levels, purchasing, and order fulfillment.
• Because inventory binds money, a low DOH allows the company to have more capital to reinvest into the business.

Shorter lead times allow businesses to order goods closer to when it is needed, minimising stocking requirements. Storing, transporting, and managing inventory can incur costs, especially when inventory needs to be stored long-term. By shortening inventory days on hand, businesses can reduce these carry costs and improve overall profitability. The second method, known as the Inventory Turnover method, requires the calculation of the inventory turnover ratio. The inventory turnover ratio represents the number of times a business sells through its inventory on hand within a given period of time.

What’s the Difference Between Inventory Turnover and Days in Inventory?

A high inventory turnover indicates that a business is selling through their inventory quickly and efficiently. This results in less money being tied up in inventory and lower holding costs. Days of inventory on hand are calculated by dividing the average inventory by the daily sales.

It helps optimize inventory accuracy levels, reduce carrying costs, and enhance order fulfillment. Efficient management of DOH leads to streamlined operations, satisfied customers, and a healthy bottom line. Inventory Days on Hand, also known as DOH, represents the number of days a company’s current inventory can sustain its operations. It is a crucial metric in inventory management as it helps businesses ensure they have enough inventory to fulfill customer demand without overstocking or risking stockouts. Days of inventory on hand (doh) can have a big impact on a business’s operations and bottom line.