Inventory Days on Hand DOH: Formula, Calculation, & More

Inventory Days on Hand plays a significant role in guiding inventory management decisions. By understanding DOH, businesses can strike a balance between holding excessive stock and risking stockouts. 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.

This metric is commonly used to define how long a product has been on the shelf before it should be sold or repurchased. There are several names for this metric, including Days of Supply (DOS), Days in Inventory (DII), days inventory outstanding (DIO), Days to Sell, and Days Sales of Inventory (DSI). Having more capital on hand allows businesses to respond quickly to changing consumer demand. With the ability to invest in new product lines or jump on hot trends before competitors, businesses can stay ahead of the curve and meet customer expectations.

It’s important to differentiate between low inventory turnover levels and shorter days in inventory, because low turnover can indicate that items aren’t selling fast enough. Symptoms of excess stock include requiring more storage space despite not shifting inventory. Alternatively, having insufficient stock can include not having enough products to satisfy customers’ orders. Ideally, you want to have enough stock for 30–60 days’ worth of inventory. The optimal number of days in inventory can change depending on factors like industry norms, business mode, and market conditions.

How can optimizing Inventory Days on Hand improve cash flow?

Again, the shorter the time period, the better it is for cash flow and overall business operations. For example, if you’re stocking up for the holidays or a big promotion, your days on hand will be inflated. However, a general rule of thumb is that the lower your inventory days on hand, the more efficient your cash flow is and, therefore, the more efficient your business. With the support of Inventory Source’s comprehensive solutions, businesses can streamline their operations and achieve efficient inventory management. Implementing effective sales strategies such as promotion planning, demand forecasting, and sales channel optimization can impact DOH. By aligning sales efforts with inventory management, businesses can ensure a steady flow of sales, reduce excess stock, and maintain an optimal DOH.

• To evaluate your existing suppliers’ excellence, ensure you have answers to these simple questions.
• If a company knows that it will need to replenish inventory in the near future, it can plan accordingly and make sure that it has the necessary funds available.
• The optimal number of days in inventory can change depending on factors like industry norms, business mode, and market conditions.
• EOQ models factor in your demand rate, order, and holding costs to help you optimize your inventory.

It can help record any historical data and also help with planning, forecasting and management of cash flow. Finally, inventory management software helps reduce errors and provide warnings on low inventory levels, thereby eliminating the need for manual inventory counts. In the end, utilizing a good program to optimize inventory can help build trust with customers and improve the overall efficiency of your operations. Inventory days on hand also differ from metrics like reorder point and safety stock, which focus more on replenishment and buffer stock strategies.

Impact of Seasonality on Days Inventory on Hand

Happy inventory days on hand formula customers are more likely to become repeat buyers and advocates for the business. When you’re holding less stock, it’s easier to pivot and shift to meet any changing consumer demands. For example, if your business has a low DOH and a new hot trend emerges, you’ll be able to order it sooner than if you had high stock levels and had to wait for more of your inventory to clear. To use this Inventory Days on Hand formula, you’ll need to know your inventory turnover ratio. Using the formula above, your Inventory Days on Hand would come to 96 days. Say you’re a small business and you have an average inventory value of $50,000 and your cost of goods sold, or COGS, is $375,000.

• As it turns out, there’s a whole industry behind predicting inventory needs.
• Instead of spending the rest of the night searching for answers, I went straight to a reliable source.
• One of the biggest benefits of inventory forecasting is improving order accuracy.
• A high amount of inventory days on hand means a low turnover rate with inventory.
• Regularly evaluating inventory levels and modifying buying is critical to maintaining an ideal inventory position.

If you can identify inefficiencies in your inventory management, you can make changes to improve your DoH. Days of inventory on hand is a lagging indicator, which means that it cannot be used to predict future trends. However, it is still a valuable metric to track because it can give you insights into a company’s overall efficiency.

The Role of Aggregate Planning in Supply Chain Management: Key Strategies and Best Practices

However, moving average is a concept I understood because it’s simple addition and division. For example, if you have data on your past water bottle sales, you might notice an uptick in sales in January when your customers make healthier New Year’s Resolutions. You might also see an increase in sales in late spring when the weather turns warmer. I find it helpful to see a formula in action, so let’s plug in some numbers for an example.

Fulfillment and Distribution provides a wide range of services for businesses looking to outsource some or all of their storage and shipping needs to a 3PL. We employ cutting edge warehouse management systems that provide clear insights into metrics like inventory days on hand. With this data, you can easily make informed decisions about how much on-hand inventory you need to maintain in a given period of time.

Reducing carrying costs

In this scenario, the business has approximately 36.5 days’ worth of inventory available to support its operations. The projection of the cost of goods sold (COGS) line item finished, so the next step is to repeat a similar process for our forward-looking inventory days assumptions that’ll drive the forecast. To have a point of reference to base our operating assumptions upon, our first step is to calculate the historical inventory days in the historical periods (2020 to 2022).

How IDO differs from other inventory metrics?

Inventory policies include parameters such as order quantities, safety stock levels, reorder points, lead times, and supplier agreements, among others. By reviewing and optimizing these policies, a company can make data-driven decisions to improve inventory management and reduce IDO. Interpreting inventory days on hand results requires considering the specific context of the business, industry benchmarks, historical data, and inventory management strategy. Analyzing IDO in conjunction with other relevant factors is essential to make informed decisions about inventory optimization, production planning, and cash flow management.

Days of inventory on hand are calculated by dividing the average inventory by the daily sales. Inventory Source, a UPS-backed fulfillment partner, offers comprehensive solutions to help businesses optimize their inventory management. With a fully-integrated WMS, TMS, and OMS platform,  Inventory Source enables merchants of all sizes to monitor their inventory levels across all sales channels and fulfillment locations. 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.

Based on the received data, you need to place an order with suppliers on the 40th day, because the delivery takes 9 days. + you can plan the cleaning of the warehouse for day 49, because the warehouse will be almost empty in the evening of this day. The first method offers a seller’s view – how many days will it take you to sell an entire lot of stock? The second shows the warehouse manager’s point of view – what the stock turnover is and how many days they are in the warehouse.