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Inventory Reduction Target and Cash Release Calculator

Finance asks for a number and planners need a target they can defend. This calculator turns a days-of-supply goal into the cash it releases, the carrying cost it saves and how fast the investment pays back.

Your numbers

Annual cost of goods sold

Current inventory value

Target days of supply

60 days

Annual carrying rate

One-off cost to get there

Disposal write-downs, expedite fees, project effort.

Your results

Cash released

$2,254,795

Annual carrying cost saved

$450,959

Current days of supply

94 days

Current turns

3.871

Inventory at target

$3,945,205

Turns at target

6.0833

Payback on one-off cost

4 months

Uses COGS based days of supply. Cash released is a one-time balance sheet effect; carrying cost savings recur annually.

Save results:

Cash released vs target days of supply

Sweeps Target days of supply from 10 to 180, holding your other inputs fixed.

Inventory target by item class

Optional: we can split this target by plant and ABC class using your ERP data.

Optional. The tool and every export work without this. No spam.

How to use it

Enter annual COGS and the current inventory value from your balance sheet or ERP valuation report. Set a target in days using the slider. The tool shows current days and turns, the inventory value at target, cash released and annual carrying savings. Add any one-off costs, such as write-downs or expedites, to get a payback period.

Use the same inventory scope for COGS and stock value
Separate raw materials, WIP and finished goods for sharper targets
Treat the target as a plan, not a guarantee

The method

Days of supply is inventory divided by COGS, times 365. Inventory at target is daily COGS times the target days. Cash released is the difference. Annual carrying savings is cash released times the carrying rate, covering capital, storage, insurance, handling and shrink. Turns are COGS divided by inventory.

Reading the result

The chart shows cash released falling as the target moves up. Steep early gains usually come from slow-moving and excess stock, while the last days of supply cost service. Do not set one plant-wide target blindly. Allocate reductions by item class and protect long lead-time critical parts.

Common mistakes

Teams count a one-time write-down as a saving or ignore the demand lift that follows the program. Others set a target below what lead times physically allow. In SAP, Oracle, Infor or Epicor, pull stock value from the valuation report at period end so it ties to the ledger.

Frequently Asked Questions

How is days of supply calculated here?

Current inventory value divided by annual cost of goods sold, times 365. This is a financial view. A demand-based view using forecast usage by item gives a more actionable plan at item level.

What carrying rate should I use?

Use your finance team's rate if they have one. Many plants fall between 15% and 30% a year when cost of capital, storage, insurance, handling and obsolescence are included.

Is cash release the same as profit?

No. Cash release is a one-time working capital improvement. Profit improves only through the recurring carrying cost saved, plus any avoided write-offs. Both matter, but they should be reported separately.

How fast can inventory really come down?

It depends on lead times and open orders. You can cancel or defer purchases quickly, but WIP and long lead items take months to flow through. Plan reductions in phases, not in a single quarter.

If you want the target broken down by plant, item class and supplier from live ERP data, Netray can build that view.

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