![]() ![]() If the products are being sold at a fast rate, it means that you are making a profit faster and that there isn’t the risk for the inventory to become obsolete. Naturally, the smaller the number of Inventory Days of Supply is, the better your company is at selling its goods – basically, this is what companies are after: selling their goods/ products in the shortest time possible. On the other hand, the Average Days to Sell the Inventory metric is calculated by dividing 365 (the number of days) by the Inventory Turnover Ratio. ![]() Then, the COGS (Cost of Goods Sold) can be calculated by dividing the total cost of goods sold in a single year by 365 days. The average inventory is calculated by coming up with the average between the inventory levels at the beginning of an accounting period and the inventory levels at the end of the said accounting period. In order to calculate the Inventory Days of Supply you just have to divide the average inventory by the COGS (Cost of Goods Sold) in a day. In case of a manufacturer, this metric measures the average time between the purchase of the raw materials and the sale of the finished product to a distributor.īeside this metric, a company’s management team will have to balance a few inventory policy holding aspects, such as bulk discounts, lead times, alternative use of warehouse space, seasonal fluctuations in orders, and the likelihood of the inventory becoming obsolete or perishing. In short, Inventory Days of Supply shows the average time between your company purchasing the products/ items and selling them to customers. It is used to measure the average time – in days – it takes for a company to sell its entire inventory. The Inventory Days of Supply metric is an efficiency ratio that’s usually known as Days in Inventory, the Inventory Period, or Days Inventory Outstanding.
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