Days of Supply

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Managing inventory would be impossible without a means to track how much inventory is on hand and if it is an appropriate amount of inventory.  With that being said, the days of supply metric is a useful metric that can show an organization how many days their existing inventory will last before it reaches zero or drops into their safety stocks.

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  The days of supply are often evaluated by defined periods.  For example, 30 days, 60 days, 90 days or even periodically.  You will need to decide what period of evaluation will work best for you.  From a planning perspective this can be beneficial on many different levels.  

• First, it helps a planner gauge when they will run out of inventory as well as plan for replenishment of those items if necessary. 
• From a procurement perspective the days of supply metric can help determine how many items to order, when to order and how frequently the purchaser should order.
• One of the many benefits of the days of supply metric outside of knowing when you will run out of inventory is that it decreases ordering costs because planner and procurement officers are able to gauge better what they need to order. 
• This will also have a positive effect on receiving materials and help you avoid lost sales.

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  ​Now that we know what days of supply is, let’s look at how this metric is calculated.  Days of Supply is calculated by dividing your inventory on hand by the average daily usage.  For example, if your organization has 1,000 units on hand and you are using on average 14 per day you would have 71 days of supply left in inventory.  
Challenge:

• Let’s say we have 1,740 units of inventory on hand and our company uses about 24 units a day.  What would our days of supply be?  Share your thoughts in the comments section below and receive a coupon to one of Lean Strategies International LLC's courses.

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