How many days of inventory do you actually need?

"A distributor like us, on the mainland, runs at thirty-five days of inventory. We carry a hundred and twenty." The sentence came six minutes into a call, and it sums up most of what there is to understand about the subject: a competitor's figure tells you nothing about what you need.

Days of inventory isn't a target, it's a result#

People set themselves "get down to ninety days" the way they set themselves a weight. It's a comfortable goal because it's a single number, and wrong for the same reason.

What determines how many days of inventory you need?#

The inventory you carry is the sum of three things, and only three:

1. How long the goods take to arrive, from purchase order to shelf. Not the lead time the supplier quotes: yours, as measured.
2. What you sell during that time, and how much that varies.
3. What you're willing to lose to stockouts — in other words, the service level you're aiming for on that item.

The cover calculation is then one division:

cover in days = inventory on hand ÷ average daily consumption

Consumption is measured over twelve rolling months, not the last quarter: a quiet quarter makes cover look comfortable where there is only a low season.

What happens if you fix the number without touching the three#

Change any one of the three and the number of days moves. Fix the number of days without touching any of them, and all you've done is move the problem: inventory falls, stockouts rise, and someone ends up reordering in a panic, at a higher price.

The real lead time is almost never the contractual one#

This is the gap that costs the most, and the one people look at least.

The three causes of the gap, everywhere#

A supplier quotes three weeks. In practice, they ship in three weeks what they have in stock; the rest goes out when they have it. If you're far from their platform, add the transport. If they consolidate orders from several plants, add the wait for consolidation. I've seen a major name in electrical fittings take three to four weeks simply to set up a new product before it could be shipped once.

Inventory on hand and inventory afloat are not the same thing#

A business announcing a hundred and twenty days of cover often carries ninety on hand and thirty afloat — ordered, paid for, on a ship. The thirty afloat cost just as much in cash. They are no use against an order placed today. Show both separately, or you believe you have a safety margin you do not have.

The real lead time is almost never the contractual one#

This is the gap that costs the most, and the one people look at least.

How do you measure a supplier's real lead time?#

So the lead time that matters is this one:

actual receipt date − purchase order date

Measured over the last twelve months, supplier by supplier, and not as an average: as an average and as a worst case. It's the worst case that sizes your safety stock.

We must have it somewhere, but you'd have to go through the goods receipts one by one.

One figure per class, not one for the company#

This is the point where the directors we meet switch fastest, because it matches what they already sense.

On the items that make up most of the revenue — the twenty percent that do eighty — carrying inventory is defensible: it turns fast, the money doesn't sleep for long, and a stockout is immediately visible to the customer. On those items, a hundred and fifty days can be a reasonable choice if replenishment is slow and the customer is sensitive.

On long-tail items it's exactly the opposite. They turn slowly, they weigh on cash, and their absence is barely noticed.

What cover does each ABC class justify?#

Why does the average mislead?#

So the real problem is never "a hundred and twenty days". It's a hundred and fifty days on the A items and three hundred days on the C items. The average hides precisely what you'd want to see.

Why cutting gets painful after the first round#

The first round comes out painlessly#

The first millions come out easily. You stop ordering what is visibly dead, you clear some lines, you renegotiate two or three, and inventory falls without anyone complaining.

The second one grinds#

Then it starts to grind. Because in the first round you cut what was obviously surplus. In the second, you start touching what actually gets used. A buyer who has lived through a stockout on an item will never again put it back to its theoretical minimum, and they're right to be wary: they're the one who takes the customer's call.

At that stage, carrying on without changing tools means asking your teams to make judgment calls blind. What they're missing isn't discipline — it's knowing, item by item, how many days they're carrying and why.

What you need in front of you to make the call#

We rarely build an "inventory management module". We build a view, one line per item.

The five columns that are enough#

• The supplier's measured lead time, average and worst case, calculated automatically from goods receipt history.
• That supplier's service level over the last twelve months, quantity received over quantity ordered.
• Current cover in days, with inventory on hand and inventory in transit shown separately — they are two very different things.
• The item's class, recalculated monthly rather than frozen once and for all.
• What the item costs to carry, tied-up capital included.

And one alert, only one: this item has been above its target cover for three months. Not another dashboard to go and consult — a line that lands in the day's list of the buyer concerned.

What not to automate#

Placing the order. An automatic order on a critical item, on a day when the supplier has a problem, and you find out at receiving. Automation is there to propose and to warn; a human validates, with enough in front of them to decide in thirty seconds.

How we put it in place#

Nobody keeps a per-SKU calculation alive by hand for more than two quarters. What we build is a threshold that lives: every item carries its own cover, recalculated from the lead time actually observed at the supplier — not the one in the contract.

When an item drops below its limit, the order goes into preparation with the quantity already worked out. Nobody monitors, nobody arbitrates on instinct on Monday morning. See the inventory and replenishment module, and what it needs to run.

Days of inventory: what to remember#

The right number of days of inventory can't be copied. It's calculated, item by item, from three quantities you can measure starting today: your actual lead time, how much your sales vary, and the service level you're aiming for.

If you only did one thing this week, make it this one: pull your days of cover separately for your A, B and C classes. The gap between the three will tell you, better than any average, where your millions actually are.