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shishpal singh, India
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What is the Meaning of a Particular Value of Days Inventory Outstanding (DIO)?
I would like to know: if my DIO is 40.5 then what can be interpreted from this? Is this good, bad, poor or do I need some contigency plan?
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Sureet
Manager, India
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The Meaning of X Days of Inventory Outstanding
A DIO of 40,5 days simply means you are able to turn over or sell your average inventory in that number of days.
Whether the figure of 40.5 is good or bad depends on the benchmark for the industry you operate in. Here you need to compare your figure with that of the industry leader to get a rough idea if your figure is good or not. However, figures are strictly not comparable due to different strategies being pursued by the companies; a comparison serves to give only an indication.
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Jaap de Jonge
Editor, Netherlands
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Meaning of X Days Inventory Outstanding
I agree with Sureet about competitive benchmarking.
- Consider also that having inventory costs money, because it occupies money that otherwise could be used elsewhere (for example put it on a bank account and receive interest).
- The sector you're in is relevant too. For example if you are running a fresh food chain, the meaning of DIO is bigger.
- And also your strategy. For example when you aim to be a cost leader, the meaning of DIO is bigger.
- In general, of course, the lower a firm's Days Inventory Outstanding, the better.
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al moran
CEO, United States
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Days Inventory Outstanding Benchmarking
I agree with both comments. What is the best place to get an up to date DIO benchmark of industries?
I am specifically looking for my industry that deals with international purchasing of textiles and distribution in the U.S.
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Eric Schmitz
Consultant, Belgium
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Zero Level Days Inventory Outstanding (DIO) is Is the Ultimate Goal
As mentioned in the definition '... The lower the DIO, the more efficient a company is...'
You can read this also in a spirit of continuous improvement: if your Days Inventory Outstanding is now 40,5, then it should become next year 35. If it is now 35, it should be 30 next year.
Zero is the ultimate goal. So, as long as it is not zero, you should improve day-by-day.
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