Days of Supply
This article covers meaning & overview of Days of Supply from operations perspective.
What is Days of Supply?
The average days' supply of inventory that you have on hand tells you how many days your current inventory will last based on your sales levels. If you are short on inventory, your warehousing costs will be lower, but you risk running out. In order to figure these values, you need to figure your average inventory and know your costs of goods sold for the year.
Formulae to calculate days of supply -
Inventory Days of Supply = Average Total Inventories / Cost of Goods Sold
No organization wants to keep more inventory as holding inventory involves cost. Knowing Inventory Days of supply can help you in placing orders timely to prevent getting short on inventory at the same time keeping costs in check. Reducing average total inventories can reduce cost further but you need an efficient delivery system because risk margin reduces with reduction in inventory level.
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