How can you use DIO to improve your inventory turnover?

2 How to calculate DIO?

To calculate DIO, you need to know your average inventory and your cost of goods sold for a given period, usually a year or a quarter. Your average inventory is the sum of your beginning and ending inventory divided by two. Your cost of goods sold is the total cost of producing or purchasing the goods that you sold during the period. You can find these numbers in your financial statements or your inventory management system. For example, if your beginning inventory was $100,000, your ending inventory was $80,000, and your COGS was $400,000 for the year, your DIO would be: DIO = (($100,000 + $80,000) / 2) / $400,000 x 365 DIO = 41.25 days This means that on average, it took you 41.25 days to sell your inventory in the year.

3 How to benchmark DIO?

DIO is a relative measure that depends on your industry, product type, and business model. Therefore, it is important to benchmark your DIO against your competitors and industry averages to see how you perform. You can find industry DIO benchmarks from various sources, such as financial databases, industry reports, or trade associations. For example, according to the 2019 Retail Benchmarks Report by Coresight Research, the average DIO for apparel retailers in the US was 74.8 days, while the average DIO for grocery retailers was 14.8 days. You can compare your DIO to these benchmarks to see if you are above or below the industry norms.

4 How to reduce DIO?

Reducing DIO can improve your cash flow, profitability, and customer satisfaction. To do so, you can forecast demand more accurately and adjust your inventory levels accordingly. Moreover, you can implement inventory control techniques such as ABC analysis, cycle counting, and reorder points to prevent overstocking or understocking. Additionally, you can improve the quality of your inventory and avoid obsolete, damaged, or expired products that take up space and resources. Furthermore, negotiating better terms with suppliers and customers can help to shorten lead times and payment cycles. Finally, offering discounts, promotions, or incentives to stimulate sales and clear out slow-moving or excess inventory may be beneficial.

5 How to monitor DIO?

Monitoring DIO is essential to track your inventory performance and identify any issues or opportunities. You can monitor your DIO by using inventory management software, dashboards, or reports that provide you with real-time data and insights. You can also use key performance indicators (KPIs), such as inventory turnover ratio, inventory days of supply, or inventory carrying cost, to complement your DIO analysis. You should review your DIO regularly, such as monthly or quarterly, and compare it to your historical trends, targets, and benchmarks. You should also analyze the factors that affect your DIO, such as seasonality, product mix, customer behavior, or market conditions, and take corrective or preventive actions if needed.