Inventory days on hand is one of the most important metrics that a business can track. It is used to measure the number of days it would take to sell all of the inventory currently on hand. This metric is used to help businesses manage their inventory levels and keep inventories lean. In this post, we will explain why it is important and how to calculate it.
Why Does Inventory Days on Hand Matter?
As mentioned, inventory days on hand is a measure of how long it would take a company to sell through all of its inventory given the current rate of sales. This metric is important for several reasons.
It provides insight into whether a company has too much or too little inventory on hand. Too much inventory ties up working capital and can lead to stock outs, while too little inventory can lead to lost sales.
In addition, it can be used to forecast future cash flow needs. If a company knows that it will need to replenish inventory in the near future, it can plan accordingly and make sure that it has the necessary funds available.
Inventory days on hand is also a good indicator of a company’s overall efficiency. A company that is able to turn over its inventory quickly is likely to be more efficient than one that takes longer to do so. As such, this metric can be used as a benchmark for comparing different companies.
How to Calculate Inventory Days on Hand?
To calculate inventory days on hand, divide the number of days in a year by the number of times inventory is sold (or used) in a year. For example, if you sell 10 units of inventory per day, you would have 36.5 days of inventory on hand (365 / 10 = 36.5).
The average company has about 20-30 days of inventory on hand. If your company has less than this, it may be an indication that you are not carrying enough inventory to meet customer demand. On the other hand, if your company has more than 30 days of inventory on hand, it may be an indication that you are carrying too much inventory and not selling it fast enough.
Companies typically track inventory days on hand for each individual product or SKU.
Benefits of Lowering Your Inventory Days on Hand
In today’s competitive marketplace, having the products customers want is essential to success. By lowering your inventory days on hand, you can help ensure that you always have the products your customers need. Below are a few benefits of lowering your inventory days on hand.
- Lower Costs: Carrying less inventory frees up cash that can be used for other purposes, and it also reduces the risk of inventory being damaged or becoming obsolete.
- Faster Profits: Lowering your inventory days on hand can lead to faster profits. With fewer products sitting in storage, you can turn over your inventory more quickly and generate more revenue.
- Fewer Stockouts: If you have less inventory on hand, you’re less likely to run out of products when customer demand is high.
How APS Fulfillment, Inc. Can Help You with Inventory Management?
At APS Fulfillment, Inc., we offer full-service e-commerce fulfillment out of Miami that includes state-of-the-art warehouse management software (WMS). We make inventory management and goods tracking easy and simple.