Days Inventory - Supply chain KPI

Days inventory is a measure of inventory management, supply chain and operations efficiency . It also provides a good indication to the level of interaction between the sales and production departments of a business in coordinating production and purchasing orders. The measure indicates how many days of inventory are being held in stock at any point in time. If the amount of inventory days is too large it may indicate to problems in the supply chain, obsolete inventory, or misuse of inventory

To calculate this measure the following formula is used:

Days of Inventory held = (Average value of Inventory / Cost of goods sold) x 365

This KPI measure is commonly used by managers and financial analyst to gauge how efficient a business is in managing its inventory levels, inventory costs and supply chain. It is directly linked to inventory turnover (Its formula is the reciprocal of inventory turnover without multiplying by 365).

Days Inventory and Inventory turnover can vary by industry and the nature of both the manufacturing process and the range of products produced for customers. Some inventory management systems can track this KPI. An example of this is the door locks and fittings industry, most of these businesses will have large product ranges, long production runs and will mainly manufacture to stock, as opposed to JIT .