Days Sales of Inventory (DSI) measures how long it takes to sell through your current inventory. Reducing DSI frees up working capital without reducing sales.
DSI = 365 / Inventory Turnover = (Average Inventory / COGS) × 365
A DSI of 90 means you're carrying 3 months of inventory on average. Reducing to 60 days on $500k average inventory frees up $167k in cash — capital available for growth, marketing, or debt reduction.
Tactic 1: Improve demand forecasting accuracy
Most excess inventory stems from forecasting errors. If you forecast 1,000 units and sell 700, you have 300 units of dead stock consuming capital and storage.
Start with your historical sell-through by SKU and month. Identify seasonal patterns. Use a simple weighted average of the last 3–6 months, with higher weight on recent periods. For SKUs with high variability, reduce order quantities and reorder more frequently.
Tactic 2: Tighten reorder points
Many businesses use gut feel for reorder timing. A data-driven reorder point is:
Reorder Point = (Average Daily Sales × Lead Time in Days) + Safety Stock Safety Stock = Z-score × Daily Sales StdDev × √Lead Time
For a SKU selling 10 units/day with 14-day lead time and moderate variability: Reorder Point ≈ (10 × 14) + (1.65 × 3 × √14) = 140 + 18.5 ≈ 159 units
Getting this right for your top 20 SKUs (which drive 80% of revenue) has the most impact.
Tactic 3: ABC analysis — stop managing all SKUs the same way
Rank your SKUs by revenue contribution: - A items (top 10–20% of SKUs, 70–80% of revenue): Tight management, frequent counts - B items (middle 30%): Standard reorder logic - C items (bottom 50%, 5–10% of revenue): Minimal reorder, consider discontinuing
Focus your forecasting and inventory optimization effort on A items. You can reduce C-item inventory dramatically with minimal sales impact.
Tactic 4: Negotiate shorter supplier lead times
If lead time is 30 days, you must hold 30 days of safety stock. If you can reduce to 14 days, safety stock requirements halve. Shorter lead times also reduce forecasting error impact — you're predicting 14 days of demand instead of 30.
Tactics: diversify suppliers to create competition on lead times; build direct relationships with manufacturers; consolidate orders to qualify for priority treatment.
Tactic 5: Liquidate slow-moving inventory before it becomes dead stock
Every 90 days, review your bottom 20% of SKUs by sell-through rate. For SKUs with <30% sell-through in 90 days: - Mark down 20–30% immediately - Bundle with fast-moving items - Return to supplier if return policy allows - Liquidate through clearance channels if necessary
A 50% recovery on $100k of stale inventory is $50k in cash — better than $0 on a write-off and negative storage costs.
Track your progress at the Inventory Turnover Calculator.