Days on Hand: Raw Materials

Days on Hand: Raw Materials

KPI Details

Days on Hand: Raw Materials measures the number of manufacturing days before all raw materials on hand are used. 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 raw materials in warehouses. However, if raw material stock is too low, companies risk losing out on sales due to stock-outs, so safe levels of raw materials inventory must be maintained.

KPI Definition

The total value of raw materials in the company's inventory divided by the average value of raw materials used in a single day.

KPI Best Practices

• Regularly update forecasted demand to reduce overstocking of raw materials
• Set maximum levels of raw material inventory based on historical data
• Negotiate standard supplier lead times and use advanced shipping notifications to minimize safety stock levels

KPI Calculation Instructions Days on Hand: Raw Materials?

Two variables are used to calculate this KPI: (1) the total dollar value (i.e., cost) of raw materials in the inventory, and (2) the average dollar value of raw materials used per day. To calculate the average raw materials used per day, divide the total dollar amount of raw materials used in a year by 365 days. Raw materials should be defined as the parts directly used to manufacture a product (e.g., lumber, paper, etc.).

KPI Formula :

(Total Value of Raw Materials Inventory / Average Value of Raw Materials Used per Day)