Since inventory cost represents the opportunity cost of funds, the Days of Inventory indicates how well inventory is being managed. Days of Inventory shows the average number of days an item is held in inventory before it is sold.

A high 'Days of Inventory' indicates that the company is not moving inventory fast. This could be a sign of low demand for the product. On the other hand a low 'Days of Inventory" could lead to the company running out of inventory. If your company runs out of inventory then your profits will most likely decrease.

The formula to determine the Days of Inventory is

Current Stock Level / Daily Usage

Where Daily Usage = Usage over Assessment Period / Assessment Period Days
For example:

If current Stock Level of an Item is 50 and the usage over an assessment period of 100 days is 250 then

Daily Usage = 250 / 100 = 2.5
Days of Inventory = 50 / 2.5 = 20 Days

To assist you in determining the Days of Inventory you will find that Ostendo will do this for you as follows:

In preparation for running the Days of Inventory Inquiry go to File>System Configuration>User-Defined Constants where you will see two Constants.

Usage History Period in Days: You can define the number of day's history which Ostendo will use to determine the Daily Usage

Add Re-Order Level to Leadtime: If this is set to 'True' then the Re-Order Level will become the basis for assessing the 'Overstock Days'. If set to 'False' then the current Inventory will be used.

Now go to Inventory>Inquiries>Inquiry – Days of Inventory and run the Inquiry which will show the following information against each Item:

• On-Hand Quantity: The current Stock quantity
• Re-Order Level: Taken from the Item Master record
• On-Hand Value: Current Value of the Item quantity in stock
• Daily Usage: Average daily usage over the above 'Usage History Period in Days'
• Days of Stock: This is evaluated from the On-Hand Quantity divided by Daily Usage.
• Leadtime Days: The current Leadtime held against the Item Master record.
• Re-Order Level Days: The Re-Order Level value held against the Item Master record divided by the Daily Usage.

Overstock Days: If:

• The 'Add Re-Order Level to Leadtime' Constant is True then this is calculated from the Current Leadtime Days – (Days of Stock + Re-Order Level Days).
• The 'Add Re-Order Level to Leadtime' Constant is False then this is calculated from the Current Leadtime Days - Days of Stock.