![]() How can ShipBob help with optimizing DSI? This means that when DSI is low, inventory turnover will be high, and high DSI makes for low inventory turnover. DSI measures the average number of days it takes to convert inventory to sales, whereas the inventory turnover ratio shows the number of times inventory is sold and then replaced in a specific time period.ĭSI is also inversely proportional to inventory turnover. Inventory turnover and DSI are similar, but they do not measure the same thing. A lower DSI indicates that inventory is selling more quickly, which is usually more profitable than the alternative. While there is not necessarily one perfect DSI, companies typically try to keep low days sales in inventory. Walmart’s merchandise is also bought in bulk by customers who visit its brick and mortar retail stores, unlike with Amazon where customers purchase just one or two items at a time and expect door-step delivery. This is because Walmart’s sales mix has a higher share of perishable goods which cannot be kept for too long in its warehouses. The variation could be because of differences in supply chain operations, products sold, or customer buying behavior.įor example, in 2018, Walmart’s DSI is lower than Amazon’s. Within a particular industry or vertical, businesses and retail companies will sometimes compare their own DSIs to their competitors’ (for example, Walmart may compare its DSI to Costo’s).īut if the DSIs are different, it doesn’t necessarily mean one company’s inventory management is any less efficient than the other. ![]() The average number of days to sell inventory varies from industry to industry. What is the average number of days to sell inventory? Average inventory value should include raw materials, work-in-process (WIP) inventory, and finished goods. Note: You can source inventory value from your company’s balance sheet and COGS value from your annual financial statements. This means that it takes an average of 14.6 days for this retailer to sell through its stock. Having calculated inventory turnover, let’s say this company wanted to calculate their DSI for the past year (365 days): Therefore, this company would calculate inventory turnover like so: To calculate average inventory value, simply add your beginning inventory valuation to your ending inventory valuation, and divide the sum by 2. ![]() Inventory turnover = Cost of Goods Sold / Average inventory value To compute DSI, you will first need to calculate your inventory turnover ratio using a different formula: Here is the formula used by retailers to compute the average time it takes to sell through their whole inventory:ĭSI = Number of days in the time period / Inventory turnover To calculate the DSI, you will need to know the cost of goods sold, the cost of average inventory, and the duration of the time period for which you are calculating the DSI.
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