# Days Inventory Outstanding (DIO)

> Source: https://netray.co/glossary/days-inventory-outstanding
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Glossary

## Short answer

Days inventory outstanding (DIO) is the average number of days inventory sits before being sold, calculated as average inventory divided by cost of goods sold, multiplied by the days in the period. Lower DIO releases cash.

## Aliases

- DIO
- Days Sales of Inventory
- DSI
- Days of Inventory On Hand

## Category

erp-core

## Full Definition

DIO = (average inventory / cost of goods sold) x number of days in the period. For a year, use 365. It is the same relationship as inventory turnover expressed in days: 365 divided by turns. If inventory averages 3 million and annual cost of goods sold is 12 million, DIO is 91 days.

DIO is one of the three parts of the cash conversion cycle, along with days sales outstanding (receivables) and days payables outstanding (payables). Cash conversion cycle equals DIO plus DSO minus DPO. Because inventory days are often the largest component for a manufacturer, they are the first place finance looks when working capital is tight.

Data comes from the ERP: inventory balance from the inventory subledger or the balance sheet, and cost of goods sold from the general ledger. Make sure both use the same scope. Including capitalized WIP or excluding consigned and customer-owned material changes the answer. Break DIO out by raw material, work in process and finished goods, since each points to a different lever: purchasing and safety stock for raw, cycle time and lot sizes for WIP, forecast and make-to-order mix for finished goods.

Use averages that respect seasonality, and avoid comparing across businesses with different production strategies. A made-to-order shop and a make-to-stock shop have naturally different DIO. Track the trend and the segment breakdown rather than a single headline number.

## Why It Matters

- Each day of DIO has a cash value equal to one day of cost of goods sold, which makes improvement targets concrete.
- It links operations decisions (lot sizes, safety stock, lead times) to working capital and financing cost.
- Splitting DIO by stage shows whether cash is trapped in raw, WIP or finished goods.
- Lenders and buyers use DIO trends as a health signal.

## In Practice

Example: annual cost of goods sold is 36.5 million, so one day of COGS is about 100 thousand. Cutting DIO from 80 to 70 days releases around 1 million of cash. If raw material is 40 days of that, a 5 day cut in raw material safety stock gets half the way.

## Faq

### What is the DIO formula?

**Answer:** Average inventory divided by cost of goods sold, multiplied by the number of days in the period. For a year, multiply by 365.

### How do DIO and inventory turnover relate?

**Answer:** DIO is 365 divided by inventory turns. A company with 4 turns has a DIO of roughly 91 days.

### Is a lower DIO always better?

**Answer:** Not always. Very low DIO can mean thin stock and missed orders. Aim for the lowest DIO that still meets your service level and lead time promises.

### How does DIO fit into the cash conversion cycle?

**Answer:** Cash conversion cycle equals DIO plus days sales outstanding minus days payables outstanding. DIO measures time cash is tied up in stock.

## Search terms

days inventory outstanding, DIO formula, days sales of inventory, DIO cash conversion cycle, how to calculate DIO, reduce days inventory outstanding, DIO manufacturing

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