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DIO: days inventory outstanding, formula and example

DIO (Days Inventory Outstanding) shows how many days, on average, the inventory on hand will last at the current rate of sales/write-offs. A low DIO (without shortages) means a “lean” warehouse; a high one means a risk of markdowns and “frozen” cash.

What the metric measures

The speed of inventory turnover and the efficiency of working capital use. In manufacturing, analyze raw materials (RM), work in progress (WIP), and finished goods (FG) separately.

Calculation

  • DIO = (Average inventory / COGS) × Number of days in the period
  • Via turnover: Inventory Turnover = COGS / Average inventory; DIO = Days in the period / Turnover
  • Monthly estimate: DIOmonth ≈ (Average inventory / COGSmonth) × 30

Use COGS and inventory at cost, excluding VAT; apply an average (opening/closing or rolling).

Calculation example

Average inventory for the quarter is 1,800,000 and the cost of sales for the quarter (90 days) is 2,700,000. DIO = 1,800,000 / 2,700,000 × 90 = 60 days. So cash invested in stock comes back in about two months.

Data sources

ERP/1C (inventory registers, COGS), WMS, MRP/MES, SKU/category/location reference data, lead time data, min/max levels, markdowns/reserves.

Interpretation

  • High DIO: excess stock, slow sales, long lead times, inaccurate forecast
  • Low DIO: efficient turnover, but check for stockout/backorder and expediting costs
  • Cash effect: DIO affects CCC = DIO + DSO − DPO and OCF

Useful breakdowns

  • Categories / SKUs, suppliers, locations/warehouses
  • Sales channels, ABC/XYZ classes
  • Aging buckets, goods with a shelf life
  • RM / WIP / FG, owned / consignment / in-transit inventory

Dashboard visualizations

  • DIO trend with target thresholds
  • DIO heatmap by category/SKU
  • Pareto of slow-moving items
  • Inventory aging by age bucket
  • Days of Supply map and fill rate/stockout indicators

How to set targets

Define a target DIO by category, taking lead time and service level into account; set min/max levels, safety stock, and ordering policies (MOQ, frequency). Review targets monthly/quarterly.

Common mistakes

  • Calculating from revenue instead of COGS
  • Using the closing balance instead of the average
  • Including VAT, ignoring markdowns/reserves
  • Not separating RM/WIP/FG and consignment/in-transit inventory
  • Comparing unequal periods and currencies without normalization

Questions for discussion

  • Which SKUs/categories make up “slow” inventory, and why?
  • Which suppliers/MOQs/lead times affect DIO the most?
  • What quick actions will reduce DIO within 30–60 days without risking shortages?

Questions and answers

What is DIO?

Days Inventory Outstanding — the average number of days inventory stays in stock before it is sold.

How do you calculate DIO?

DIO = average inventory / cost of sales for the period × number of days in the period.

How do you reduce DIO?

Clear dead stock, forecast demand more accurately, order smaller batches more often and set minimum and maximum stock levels by product.