Days of stock

When we discuss of stock we can have multiple approach: we can discuss about quantity of goods (how many products we have on stock), we can discuss about value (what is the value of the products that we keep on stock), but more often we discuss about day of stock.
Days of stock mean if i sell all the products that i have it in the stock in how many days all the stock is finish. This therms is relative to sales. But why we use this instead of quantity or value of the stock?
One of the reason is that this parameter days of stock it is constant for all the period of the year, and it is not affected by the sales fluctuation, it remains constant even if sales fluctuated in different period of the year or in different period of the month. For example 3 days of stock for product X is 3 days of stock in August(worst month in the year) and 3 days of stock in December (best month in the year). What is the difference between those 2 months? Even if i have 3 days of stock in August and in December the quantity will not be the same and we adjust the quantity of products X in those different months related to the sales. How we correlate this? It is a simple relation days of stock = (total quantity of product x) / (ADS) where ADS means average daily sales and means how many product X do we sale average per day. So, days of stock is constant but we adjust the quantities related to the daily sales.
Days of stock is calculated using input like: difference between payment term that we can obtain from customers and from suppliers, lead time between order and delivery, transport time, avoid out of stock etc. After we calculate the days of stock we can calculate the quantity of goods related to the average daily sales.
Another reason that days of stock is used is the ease of use. This parameter it is very important and a less value of this parameter can save a lot of the company money. One days of stock for every products that you have in portfolio will block important financial resources. On the other hand less days of stock increase the risk of out of stock and you will loose sales.
Always you must have a optimum value to not have out of stock or block a lot of money in stock.
If you have problem with stock we can help you to find the optimum.

6 thoughts on “Days of stock

  1. tarek Abdallah

    how can payment term that we can obtain from customers and from suppliers is a factor while calculating the day of stocks?

    Reply
    1. admin Post author

      Tarek,
      It is very simple in fact. Let’s say that you want to open a shop right now and you do not know how much stock you need, because at the begining, you do not have info about the sale. The best way is to work with less stock because you do not want to block money there, but also you want to have enought stock to have producs for clients. The best way is to have stock and not block money in it, and this can be done calculate the days of stoc related with the suplier payment terms and customer payment teerms. Ths is the start and after that you adjust the value with other paramether.

      Reply
  2. Avril Scheepers

    I work at a motor manufacturing company, which has a large amount of imported small component parts. We are monitored on having 20days stock on hand. Now, I would like to know how is this possible, if we have a leadtime of 3 months from a supplier, and our forward planning of 3 months is totally not accurate and changes every week. Where would I ever reach my goal of having 20 days stock on hand over a range of 1000 components which are used across the board of all our units? Some are fast moving parts, others are slow movers. Lot size qty’s also play a big part in not reaching my goal. Some real advise would really be appreciated, as I am now at my wits end trying to explain that the forward projection we get is not reliable at all, as we are not able to turn a vessel around in the middle of its course.

    Reply
  3. admin Post author

    Avril,
    I saw a company which have 28 days of stock and the long lead-time it is 350 days and they have more than 100 days lead-time for 40% of the products that they have in stock. They obtain such a result using a very good planning system, system which is integrated with supplier. If you want to have 20 days of stock you must to build a very good planning system, otherwise it is very difficult to obtain that numbers.

    Reply
  4. Gunter

    Hello

    I saw your comment on days off stock but I think this parameter is useless in a production area. In a distribution area, I could understand this parameter. But I work in a production area. I have raw materials on stock that always have a low ‘days of stock’ but are still worth a lot in value. What I do is, I look at the value since that’s the most important for the company. You need to take a look at the total picture of the company which is money, available money, cashflow, … As a purchaser I can influence this proces positively ornegatively. That why I need to take a look at value and not days of stock.

    For example: I buy 5 products, but they are all the same product but from different manufacturers. Let’s say that they are in theory €1mio worth per product. I could buy each product and have €5 mio on stock. I use €1mio per product per month. That is a very low ‘days of stock’ per product but I have like €5mio on stock from the same reference but from different manufacturers. If I would use your parameter, there would be no problem. But the company pays €5mio and has a very bad cash flow. In that moment, we as a purchaser need to be creative. For example, we could produce that month all the orders from our customers that use 1 particular manufacturer, the next month the other manufacturer… Or we could search creative solutions, maybe the customer think it’s ok to change from quality that month so that the lead time would be shorter…

    That’s just my opinion …

    Reply

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