In this article, we will explore what Days of Supply (DOS) in inventory is and how to calculate it. We will also provide you with our step-by-step process for its efficient management.
Days of Supply (DOS) indicates the number of days a business can meet customer demand with its existing stock. It is calculated by dividing the existing inventory by the average daily sales or usage rate.
Example: A retail store has 200 units of Nike Air Max sneakers in stock and typically sells 20 pairs daily. With these numbers, the Days of Supply (DOS) would be 10 days, meaning the current stock of Nike Air Max sneakers is expected to last for another 10 days before selling out.
Days of Supply (DOS) is an essential tool for efficient inventory management. Below are some of the most common reasons why DOS is important:
DOS helps businesses maintain an optimal inventory level to ensure there is enough stock to meet customer demand without overstocking. This reduces the costs associated with holding excess inventory.
By avoiding overstocking, companies can allocate resources more efficiently leading to better cash flow management. Money isn't tied up in unsold goods since it can be invested elsewhere to generate revenue.
DOS ensures products are available for customers when needed. This leads to higher customer satisfaction. It helps in avoiding stockouts and ensures that customer demand is met consistently.
By understanding the DOS, businesses can better plan their reordering processes and this leads to a more streamlined and efficient supply chain. Suppliers are informed in advance to ensure timely delivery of goods.
DOS helps in identifying and mitigating risks associated with inventory management, such as obsolescence, spoilage, or fluctuating demand. By regularly monitoring DOS, businesses can adapt their strategies to minimize these risks.
DOS provides valuable data that can inform decision-making processes. Businesses can analyze trends, predict future demand, and make informed decisions on procurement, production, and distribution.
By balancing inventory levels in line with demand, businesses reduce holding and ordering costs and avoid markdowns and write-offs for excess or obsolete stock. This also enhances overall profitability by aligning inventory investment with market demand.
The DOS formula helps businesses estimate how many days the current inventory will last at the present rate of sales or consumption.
The formula to compute Days of Supply (DOS) is:
DOS = Current Inventory Level / Average Daily Usage or Sales
Where:
Current Inventory Level is the total amount of a specific item you have in stock.
Average Daily Usage or Sales is the average quantity of the item used or sold per day.
Example: With a current inventory level of 500 units and average daily sales of 25 units, the days of supply are 20 days.
DOS = Current Inventory Level / Average Daily Usage or Sales
DOS = 500/25
DOS = 20 days
Use our 10 step Inventory DOS Management process to efficiently manage your inventory days of supply. Simply follow the steps below:
Determine the products that are crucial for your business operations or are top sellers. Prioritize them for DOS management to ensure availability and sales continuity.
Example: A tech retailer identifies that Apple iPhones and Samsung Galaxy phones are their top-selling products. The store ensures these items are the primary focus when calculating and managing DOS.
Compute the average number of units sold per day for each key inventory item. This data is essential for determining inventory turnover rate.
Example: The retailer sells an average of 15 Apple iPhones and 10 Samsung Galaxy phones daily. These numbers are used to gauge the inventory turnover rate.
Identify the current stock levels of each key inventory item. Accurate counts are essential to compute precise DOS.
Example: The current inventory shows 150 Apple iPhones and 100 Samsung Galaxy phones in stock. These figures are used to calculate the DOS.
Use the formula: DOS = Current Inventory / Average Daily Sales, to calculate the days of supply for each key inventory item.
Example: For Apple iPhones, DOS = 150/15 = 10 days, and for Samsung Galaxy, DOS = 100/10 = 10 days. This indicates the current stock for both items will last for 10 days.
Establish reorder points based on the DOS, considering lead times to replenish stock before it runs out.
Example: If the lead time is 3 days, the retailer should reorder when the DOS reaches 7 days to ensure continuous availability. For iPhones, that’s when stock levels drop to 105 units.
Regularly review and analyze sales data to identify any fluctuations or trends in sales velocity and adapt DOS calculations accordingly.
Example: The retailer notices an increase in iPhone sales to 20 units per day. The DOS is recalculated to adjust the reorder point to maintain inventory levels.
Assess the reliability and performance of suppliers to ensure timely restocking and adapt the DOS calculations if necessary.
Example: The supplier of Samsung Galaxy phones consistently delivers in 2 days instead of 3. The retailer adjusts the reorder point for this item considering the reduced lead time.
Maintain a buffer stock to cater to unexpected spikes in demand or delays in restocking to ensure uninterrupted service.
Example: The retailer keeps an extra 20 units of Apple iPhones as a buffer. This ensures availability even if demand spikes unexpectedly or restocking is delayed.
Regularly review and adjust the DOS management strategy based on ongoing sales data, supplier performance, and market trends to optimize inventory levels.
Example: The retailer reviews DOS monthly and notices a consistent increase in Samsung Galaxy sales. The average daily sales, DOS, and reorder points are adjusted accordingly.
Implement inventory management software or systems to automate and optimize the DOS calculation and inventory reorder processes.
Example: The retailer adopts an inventory management system that automatically tracks sales, calculates DOS, and alerts for reorder points. This enhances accuracy and efficiency in maintaining optimal inventory levels.
Let’s explore how BestTech Electronics applied our DOS inventory management process to optimize its Apple iPhone and Samsung Galaxy smartphone stocks.
BestTech focuses on Apple iPhones and Samsung Galaxy smartphones because of their consistent sales and significant revenue contribution. In the previous quarter, BestTech sold 1200 iPhones and 800 Samsung Galaxy smartphones which confirms their status as top sellers.
The retailer analyzes sales data and calculates an average of 40 iPhones and 27 Samsung Galaxy smartphones sold daily. This assessment is based on the previous month's figures, where 1200 iPhones and 810 Samsung Galaxies were sold.
With an organized inventory system, BestTech has an accurate count of 400 iPhones and 270 Samsung Galaxies in stock. A recent inventory count confirms these figures and ensures readiness for the upcoming sales season.
Utilizing the DOS formula, BestTech finds that the current iPhone stock will last for 10 days and Samsung Galaxy for another 10 days at the current sales pace. The calculation is based on 400 iPhones in stock with a daily sale of 40 units, and 270 Samsung Galaxies with a daily sale of 27 units.
BestTech, considering a 4-day lead time for restocking, sets a reorder point at the 6-day mark. So, when the iPhone stock reaches 240 units and the Samsung Galaxy at 162 units, a new order is automatically placed to replenish the stock.
The retailer maintains a keen eye on sales trends and recently, a 10% increase in Samsung Galaxy sales was noted following a successful marketing campaign. The daily sales spiked to 30 units which prompts an adjustment in DOS calculations.
BestTech’s supplier consistently delivers orders a day ahead of the 4-day schedule to ensure that stock levels are replenished promptly. This efficiency was proven in the last three deliveries which arrived in just 3 days each time.
To mitigate the risks associated with unexpected demand spikes or restocking delays, BestTech holds a buffer of 50 iPhones and 30 Samsung Galaxy smartphones. This buffer proved invaluable during a recent tech expo to ensure continuous availability.
Every month, BestTech reviews its DOS strategy. A consistent increase in Samsung Galaxy sales led to the adjustment of the reorder point to 5 days of supply. This change ensures the inventory is responsive to the increased sales pace.
The retailer employs a sophisticated inventory management system that automatically tracks sales, calculates DOS, and signals reorder alerts. Last month, this system flagged an impending low stock scenario which ensured timely reordering and constant product availability for both iPhones and Samsung Galaxy smartphones.
We hope that you now have a better understanding of what Days of Supply (DOS) in inventory is and how to implement our DOS inventory process to improve inventory efficiency.
If you enjoyed this article, you might also like our article on strategic inventory or inventory impairment.
