Procurement Glossary
Days Inventory Outstanding (DIO): Key figure for storage duration and capital commitment
November 19, 2025
Days Inventory Outstanding (DIO) is a key metric in procurement management that indicates how many days a company needs on average to sell or consume its inventory. This metric measures the efficiency of warehousing and shows how long capital is tied up in inventory. Find out below how DIO is calculated, what target values to aim for, and how this metric can help optimize your procurement strategy.
Key Facts
- DIO is calculated as follows: (average inventory ÷ cost of goods sold) × 365 days
- Lower DIO values mean faster inventory turnover and lower capital commitment.
- Industry-specific differences: Retail 30-60 days, automotive industry 15-25 days
- Together with DSO and DPO, DIO forms the cash-to-cash cycle.
- Optimal DIO values balance availability and cost efficiency
Contents
Definition and significance of days inventory outstanding (DIO)
Days Inventory Outstanding quantifies the average number of days it takes a company to completely turn over its inventory.
Basics and calculation
The DIO formula is: (average inventory ÷ cost of goods sold per day) or alternatively (average inventory ÷ cost of goods sold) × 365. The average inventory is calculated as the mean value of the opening and closing inventory for a period.
- Cost of goods sold corresponds to the cost of goods sold (COGS).
- Inventory is valued at acquisition cost.
- Observation period usually one fiscal year
DIO vs. other inventory metrics
Unlike inventory turnover, which indicates how often inventory is turned over per year, DIO expresses this in days. While fill rate measures delivery capability, DIO focuses on the length of time capital is tied up.
The importance of DIO in Procurement
For purchasing organizations, DIO is a critical indicator of inventory planning and supplier management efficiency. Optimized DIO reduces working capital requirements and improves liquidity without compromising service levels.
Measurement, database and calculation
Accurate determination of DIO requires reliable data sources and standardized calculation methods.
Data acquisition and system integration
Modern ERP systems automatically provide the basic data for DIO calculations. Correct inventory valuations and timely posting of all goods movements are crucial.
- Daily inventory recording for accurate average values
- Integration of goods receipt data and consumption statistics
- Accounting for seasonal fluctuations using rolling averages
Segmented analysis
DIO should be viewed not only from an overall business perspective, but also differentiated by product category, supplier, or location. ABC analysis helps to identify critical inventories.
Benchmarking and target value definition
Industry comparisons and historical developments form the basis for realistic DIO target values. Specific company requirements such as lead times and fluctuations in demand must be taken into account.
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Interpretation & target values for DIO
The correct interpretation of DIO values requires industry-specific benchmarks and strategic contextualization.
Sector-specific target values
Optimal DIO values vary significantly between industries. While fast-moving consumer goods companies aim for DIO values of 20-40 days, engineering companies accept 60-120 days due to longer production cycles.
- Retail: 30-60 days
- Automotive industry: 15-25 days
- Pharmaceutical industry: 90-150 days
- Technology industry: 40-80 days
Performance monitoring
Regular DIO monitoring enables early corrective measures. Trend analyses reveal developments and support the evaluation of optimization measures. Suppliers' adherence to delivery dates influences the required safety stocks.
Integration into overall key performance indicator system
DIO should always be considered in the context of the cash-to-cash cycle. Combining it with days sales outstanding and days payable outstanding provides a complete picture of working capital efficiency.
Measurement risks and bias in DIO
In DIO analysis, various distortions and measurement errors can impair the validity of the results.
Valuation distortions
Different valuation methods (FIFO, LIFO, weighted average) result in differing DIO values. Inflation effects and currency fluctuations can cause additional distortions.
- Inconsistent valuation approaches between periods
- Neglect of depreciation and obsolescence
- Seasonal fluctuations without corresponding normalization
Data quality problems
Incomplete or incorrect inventory data significantly distorts DIO calculations. Particularly critical are unrecorded goods movements or delayed system postings, which can affect the three-way match rate.
Strategic misinterpretations
Looking at DIO in isolation, without considering service levels or market dynamics, can lead to suboptimal decisions. Overly aggressive DIO reductions jeopardize delivery capability and can result in higher costs due to rush orders.
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Practical example
An automotive supplier with annual sales of €500 million and average inventory of €25 million calculates its DIO as follows: (€25 million ÷ €300 million cost of goods sold) × 365 = 30.4 days. By implementing a just-in-time strategy and improving supplier integration, the company was able to reduce its DIO to 22 days, resulting in capital savings of €7 million.
- Analysis of the current warehouse structure and identification of optimization potential
- Negotiating shorter delivery cycles with key suppliers
- Introduction of automated reordering systems based on consumption forecasts
Current developments and effects
Digitization and changing market conditions are having a significant impact on DIO optimization.
AI-supported inventory optimization
Artificial intelligence is revolutionizing warehousing through more accurate demand forecasts and dynamic order point adjustments. Machine learning algorithms analyze complex patterns and reduce DIO while increasing availability.
- Predictive analytics for better demand planning
- Automated reorders based on consumption patterns
- Real-time optimization of safety stocks
Supply Chain Resilience
Global supply chain disruptions have heightened awareness of supply security. Companies are balancing low DIO values with strategic buffer stocks to mitigate delivery risks.
Sustainability and circular economy
Environmental awareness is driving the development of sustainable inventory strategies. Reduced DIO values not only minimize capital commitment, but also obsolescence risks and disposal costs, which contributes to quality assurance.
Conclusion
Days inventory outstanding is an indispensable key performance indicator for efficient procurement management, reflecting the balance between capital commitment and security of supply. Through systematic DIO optimization, companies can improve their liquidity while increasing operational efficiency. The key lies in industry-specific interpretation and integration into a holistic key performance indicator system that takes both financial and operational aspects into account.
FAQ
What is a good DIO value?
An optimal DIO value depends heavily on the industry. In general, lower values are better, as they mean less capital is tied up. However, it is important that delivery capability is not compromised. Values between 20 and 60 days are considered good in many industries.
How can DIO be reduced?
DIO can be reduced through better demand forecasts, optimized order quantities, shorter delivery times, and more efficient warehouse processes. The elimination of slow-moving items and improved supplier coordination also contribute to the reduction.
What are the risks of a DIO that is too low?
DIO values that are too low can lead to stockouts, missed sales opportunities, and higher procurement costs due to rush orders. A balance between capital commitment and security of supply is crucial.
How does DIO differ from inventory turnover?
While inventory turnover indicates how many times per year the inventory is completely turned over, DIO expresses the same in days. DIO = 365 ÷ inventory turnover. Both metrics measure inventory efficiency from different perspectives.
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