Inventory days on hand measures how quickly your business turns it's inventory levels, on average. Calculating accurate inventory days on hand allows your business to minimize stock outs. In general, the fewer days of inventory on hand, the better!
Days of inventory on hand = (average inventory for a given period / cost of sales for same period) x 365
Why is inventory days on hand an important metric for you to track?
- The fewer inventory days on hand you have, the less money you need to spend on carrying costs (warehouse space, employee wages, etc.) and your upfront inventory costs.
- If you can reduce your inventory days on hand (meaning, speed up the rate at which you turn inventory), you’re moving inventory quicker, and thus making your money back quicker.
- Having an accurate inventory days allows you set up accurate reorder points and have the right amount of stock available, at the right time, at the right place. With fewer stock outs, you can continue to satisfy your customer's expectations.