Calculate Days of Supply

Days Supply Formula:

\[ \text{Days Supply} = \frac{\text{Inventory}}{\text{COGS} / 365} \]

Days Supply:

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1. What is Days Supply?

Days Supply is a financial metric that calculates how many days a company's current inventory will last based on its cost of goods sold. It helps businesses manage inventory levels and cash flow effectively.

2. How Does the Calculator Work?

The calculator uses the Days Supply formula:

\[ \text{Days Supply} = \frac{\text{Inventory}}{\text{COGS} / 365} \]

Where:

\( \text{Inventory} \) — Current inventory value in dollars
\( \text{COGS} \) — Cost of Goods Sold in dollars per year
\( 365 \) — Number of days in a year

Explanation: The formula divides the annual COGS by 365 to get daily COGS, then divides the inventory value by the daily COGS to determine how many days the inventory will last.

3. Importance of Days Supply Calculation

Details: Days Supply is crucial for inventory management, helping businesses avoid stockouts, reduce carrying costs, optimize ordering cycles, and improve working capital management.

4. Using the Calculator

Tips: Enter inventory value in dollars and annual COGS in dollars per year. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Days Supply value?
A: Ideal Days Supply varies by industry, but generally 30-90 days is considered healthy. Too high indicates excess inventory, too low risks stockouts.

Q2: How does Days Supply differ from Inventory Turnover?
A: Days Supply shows how long inventory lasts, while Inventory Turnover shows how many times inventory is sold and replaced in a period. They are inversely related.

Q3: Should I use annual or quarterly COGS?
A: Use annual COGS for annual analysis. For seasonal businesses, consider using quarterly or monthly COGS for more accurate short-term planning.

Q4: What if my COGS fluctuates significantly?
A: Use average COGS over a relevant period. For businesses with high seasonality, calculate Days Supply for different seasons separately.

Q5: How can I improve my Days Supply?
A: Reduce excess inventory, improve demand forecasting, negotiate better terms with suppliers, and implement just-in-time inventory practices.