Days on Hand
Days on Hand (DOH) measures the average number of days a company can meet its sales demand with its current inventory levels. It indicates how long existing stock will last without replenishment.
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Apply as a Design Partner →Days on Hand is a crucial inventory management metric calculated by dividing current inventory by the average daily cost of goods sold (COGS). A lower DOH often indicates efficient inventory turnover, while a higher DOH might suggest overstocking or slow sales. This metric helps CPG brands assess their inventory health, identify potential stockouts or excess, and optimize working capital.
DOH directly impacts a CPG brand's cash flow by tying up capital in inventory. Efficient DOH management minimizes storage costs, reduces waste from spoilage or obsolescence, and prevents lost sales due to stockouts. It's vital for maintaining profitability and operational agility.
For CPG and food manufacturers, DOH is particularly critical due to the perishable nature of many products and fluctuating consumer demand. Balancing DOH is essential to avoid expired goods on shelves while ensuring product availability for promotions or seasonal spikes. Effective DOH management helps maintain product freshness and customer satisfaction.
A frozen pizza manufacturer with 30,000 units in inventory and an average daily sale of 1,000 units has 30 Days on Hand. This means they have enough stock for the next 30 days based on current sales velocity.
How is Days on Hand calculated?
DOH is calculated by dividing the total current inventory (in units or value) by the average daily cost of goods sold (COGS) or average daily sales volume.
What is a good Days on Hand for CPG?
An ideal DOH varies by product and industry, but CPG brands generally aim for a balance: low enough to minimize holding costs and spoilage, but high enough to prevent stockouts. Perishable goods will typically have a much lower DOH.
What are the risks of high Days on Hand?
High DOH can lead to increased carrying costs, higher risk of spoilage or obsolescence for perishable goods, and significant capital tied up in inventory, impacting cash flow.
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