days inventory outstanding (DIO)
Days inventory outstanding (DOI) is the average number of days it takes for inventory to be sold. DOI is also known as Inventory Days of Supply or Days in Inventory.
DOI is an important key performance indicator (KPI) and calculation in sales and inventory management as it indicates the turnover of stock and supplies. The measurement helps companies analyze what inventory is sold or used faster and understand how often and how many units need to be ordered to restock. DOI is sometimes used in sales as a brand-specific measurement to determine what brands sell and when their products are sold.
Typically, DOI is a figure that is averaged over a year. There are a number of ways to express the formula for calculation of DOI. A popular equation use to determine DOI is:
DOI = (average inventory/cost of sold items) x period of time
How DOI is generated and use varies greatly from one company to another but with most businesses, a lower DOI is desired. The metric is an important statistic for a business’s performance as it shows how fast the company can turn stock into revenue. A lower period of time for DOI generally gives a company more capital, while a higher DOI means a longer time to clear stock and thus, a reduced capital.