The term “days inventory on hand,” aka “days of supply,” along with “inventory turns,” is a measure of inventory investment.

Although turns may be one of the most basic measures of an organization’s “leanness,” days inventory on hand perhaps helps lean practitioners better visualize the magnitude of (excess) inventory and its effect on a value stream’s lead time. This is especially applicable when the notion of inventory extends beyond parts and finished goods to transactional (i.e., files, contracts, etc.) and healthcare (i.e., tests, reports, etc.) value streams.

There are two basic approaches to calculate days inventory on hand:
1. Divide the number of days that the value stream is operating by the inventory turns
2. Divide average inventory by daily usage.

Mathematically, it gets you to the same place. It’s often more actionable and meaningful if the days inventory on hand is not only calculated with total inventory, but also by raw material and finished goods, and even by other inventory subcategories.

Like with many of the Lean Math entries, some math convention considerations bear discussion:

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