DealersEdge Professional Forums

I would like to know the formula for looking at my stocking levels compared with sales for the past 12 months to see how many days supply I have for each part in my inventory.

Scott,

There are two ways to calculate 'days supply' for a particular part. One way (the accountants method) is more accurate but probably impossible to compute at this point. You will need to know the ending month inventory value of a part including discounts or premiums applied to that part, and the monthly cost-of-sales for that part. If you divide the total annual cost-of-sales by the average inventory over the year then you get the 'dollar-turns' for that part. Then divide 365(days) by 'dollar-turns' to get your average days-supply for that part.

The easier way to do the math is to take the unit-days-supply. Take the total unit sales for a particular part and divide by the average unit inventory over the year. This gives you 'unit-turns'. Now divide 365(days) by 'unit-turns' to get unit-days-supply for that part.

The difference between the two calculations appears when the price paid or discounts for a part change over time. The unit calculation doesn't take price fluctuation into account. However, unless you keep accuarate inventory value per part number, you'll have to use the unit method.

What will this tell you about your stocking levels? Proper 'Days Supply' for a particular part should allow you enough inventory to sell until you can be restocked. If you can be restocked overnight, then your days supply should (or can) be as low as 3 days or one unit. If the part moves quickly and you get stock orders every week, then you will need as much as 15 days supply.

Do these numbers seem small to you? They should. Most inventory systems won't allow you to stock at levels below 30 days but if you get stuff every day, why have any inventory at all. You just need enough to satisfy current demand plus some emergency stock.

If you do the calculations and find that you keep high days supply of a part that can be stocked every day, change the order criteria. You'll free up some of your dealers money for other stuff.

Scott

once again, my browser posted my response twice, so I erased the second copy

scott

[This message has been edited by sallen1 (edited 07-13-99).]