* Is High or Low Best: Lower is Better
Days on Hand: Finished Goods measures the number of manufacturing days before all finished goods on hand are sold. High values for this KPI may suggest that the company is not accurately forecasting the demand for its products or that the company does not have an effective inventory carrying strategy. A low value for this KPI is generally preferred due to the high inventory carrying costs related to storing finished goods in warehouses. However, if finished goods stock is too low, companies risk losing out on sales due to stock-outs, so safe levels of finished goods inventory must be maintained.
The total value of finished goods in the company's inventory divided by the average cost of goods sold (COGS) in single day.
Two variables are used to calculate this KPI: (1) the total dollar value (i.e., inventory value) of finished goods in the inventory, and (2) the average COGS per day. To calculate the finished goods inventory value, calculate the total direct cost (i.e., materials and labor) of finished goods in the inventory. To calculate average COGS per day divide the total COGS in a year by 365 days. Do not include work-in-process or raw materials inventory in the numerator of this calculation.
(Total Value of Finished Goods Inventory / Average COGS per Day)
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