![]() ![]() We will not be going into Lead Time in this post, but simply put, if your supplier has a lead-time of 7 days (which is 315 parts) and can deliver consistently, then why would you want 36.66 days worth. ![]() Now you may be asking yourself if this is a good number or not, well it depends on your supplier's Lead Time. This tells you that you have 36.66 days of inventory on hand for part #12345. Part #12345 has a current quantity of 1650 pieces and the average monthly usage ( total sold / 30) for that item during that month was 45. I prefer this way because I think DOH is a much more important metric that turns and it does not require COGS. There is also another (but similar) way to calculate DOH and Turns. The Inventory Turnover ratio and Days On Hand ratio are inversely related, as you can see if your turns are high, then your DOH will be low and if your turns are low (in this case), your DOH will be high. This means that the company, for its entire inventory in general, had an average of 218.5 days of inventory on hand. 365 are the most common but some analyst prefers to use 360. Inventory Days On Hand (DOH) = 365 or 360 / Inventory TurnoverĪsk your accounting or finance department what days to use in your calculation. Inventory Turnover (Turns) = $5,000,000 / $3,000,000 = 1.67ġ.67, this means that the company turned over its inventory 1.67 times during your time period and in this case, 12 months. Inventory Turnover (Turns) = Cost of Goods Sold (COGS) / Average Inventory The inventory values can be obtained from the Balance Sheet. Each item or SKU will have it’s own DOH, which will be explained later in this post.Ĭost of Goods Sold (COGS): Cost of Goods Sold is derived from the Income Statement you can get this from your accounting department for the period you are working in.Īverage Inventory depends on the time period you are working with, if you are working within a month, you take your total consumption of parts and divide by 30. For example, if you have 30 (DOH), that means your inventory has 30 days worth of inventory on hand during that period. The Inventory Days On Hand (DOH) ratio specifies how many days worth of inventory the company has at it’s disposal. The Inventory Turnover ratio measures how effectively a company is using its inventory. Q.There has been so much written on these two Key Performance Indicators (KPI’s) but I wanted to give you my perspective on how I have trained my colleagues to which helps them understand these metrics. Then I complete the remaining formula on the mentioned section by creating the following measures: Average Inventory = DIVIDE(,0) ![]() On My Dashboard, I calculated the COGS and Total sales within the last year (365 Days)īased on the following Dax code: Cost Goods Last 12 Months = This means under the first approach, inventory turns 40 times a year and is on hand approximately nine days.” Translate this into days by dividing 365 by inventory turns. Using the first equation, the company has an inventory turnover of $1 million divided by $25,000 in average inventory, which equals 40 turns per year. “Approach 1: Sales Divided By Average InventoryĪs an example, assume company A has $1 million in sales and $250,000 in COGS. ![]()
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