For many ecommerce brands looking to expand their business, growth often comes with increasing product orders. However, if sales don’t initially pick up as quickly as planned, your brand's inventory turnover may slow down. Brands who find themselves in this position may want to make some strategic moves to optimize their businesses “days in inventory” to get their product back to flying off the shelves.

Understanding Days in Inventory

The term Days in Inventory (DII), also known as Days Sales in Inventory (DSI), refers to the average number of days a business holds its inventory before selling it to a consumer. Essentially, this metric measures how long it takes for the company to turn its inventory into sales. One way to think about DII is in dollar value, meaning how many days of sales it will take for a business to generate the equivalent revenue to its current stock sitting in inventory. If inventory is sitting on the shelves for too long, the business will experience a delay in cash flow that potentially could be used for growth opportunities. 

A business's DII is highly indicative of its operations efficiency, as a high DII will indicate the business is tied up in inventory and not selling products at a fast enough rate. This could be due to a myriad of factors such as decreased market demand, high production costs, or slow sales periods. On the other hand, a low and healthy DII will mean that the business is thriving in balancing its production orders and sales. Experts recommend a healthy DII is between 30-60 days, however this metric will vary depending on industry, company size, and seasonality. All together, the longer products remain in inventory, the more cash is tied up and the less turn over of sales are occurring.

Why Inventory Gets Stuck & Why It’s a Problem 

Ecommerce brands should be evaluating days in inventory to ensure the efficiency of their business. No business owner wants to have too much excess stock on the shelves with slow sales, nor not enough inventory to fulfill an unexpected surge in orders. Finding the correct balance of DII is paramount for successful inventory management, and there are a few reasons this could happen: 

• Overordering: Ecommerce businesses who overorder products in anticipation of sales will see excess stock sitting on shelves, leading to a slower sales turnover. 
• Poor Demand Forecasting: Incorrectly forecasting consumers interest level in products from historical sales data and seasonality trends can leave ecommerce brands in a bind with a surplus of inventory. 
• Failed Marketing & Advertising: If a business's product is not moving, marketing strategies and promotions may be falling short and require further adjustments to target the right audience. 
• Seasonality & Trends: Seasonal shifts in consumers behaviour can result in products left on the shelves during slow sales periods and risk products becoming irrelevant in the ever changing market. 

When these factors occur, ecommerce businesses will find themselves in a situation where their inventory levels surpass even that of their safety stock, which is kept on hand in case any unpredictable supply and demand issues arise. An excess of stock can pose a major challenge for ecommerce businesses as valuable cash flow will be tied up and limit their agility to scale in other aspects of their business, hindering their growth. With this surplus of stock, brands will face increased storage costs as their inventory sits unsold in a warehouse for too long. With holding costs averaging 20-30% of a businesses inventory value, excess stock poses a significant problem. It often forces brands to implement necessary product markdowns, suffer low profit margins, and risks spoilage of perishable goods, ultimately eating away at profits  

How to Improve Your “Days in Inventory”

Holding excess stock may seem like a good idea to businesses preparing for unexpected demand. However, scaling ecommerce brands can employ strategies to both meet this demand, and optimize their days in inventory for a profitable and efficient operation.

Optimize Inventory Forecasting

Businesses should make use of historical sales data to ensure the accurate prediction of future sales is backed by real time data and consumer behaviours. By analyzing past trends, and possibly implementing predictive analysis models such as artificial intelligence tools, brands can ensure they are meeting accurate consumer sales levels. Keeping seasonality and inventory trends in mind will also prevent businesses from ordering in surplus during off peak seasons, ensuring their DII stays in a healthy range.

Invest in an Inventory Management Software

To aid in future inventory forecasting, ecommerce brands may look to implement inventory management software. These tools can be used for better visibility over inventory levels, shipping statuses, and even planning tools. Integrating these tools can automate inventory monitoring by conducting regular audits and ensuring all purchasing decisions are driven by real-time data. This alignment with your business's forecasted demand helps prevent supply chain disruptions and optimizes inventory management for a healthy DII.

Launch Targeted Promotions

For excess stock taking up space, and accruing costs in storage fees, ecommerce brands may look to launching targeted promotions to accelerate this turnover. Offering clearance sales, bundled promotions, or discounts can help brands clear their shelves, sell products at peak relevance, and keep their days in inventory low.

Set Aside Funding for Marketing

Powerful marketing campaigns may just be the answer to keeping your brand and products top of mind for converting customers. Ecommerce brands should not underestimate the impact targeted campaigns can play on sales, with email marketing being an impressive converter boasting a 40:1 ROI. Businesses looking to maintain healthy a days in inventory, while scaling their businesses, should consider allocating a portion of their budget for experimental or robust marketing and advertising campaigns to move their product more efficiently. 

Broaden Your Sales Channels

Businesses can simultaneously grow in exposure, while decreasing their days in inventory to accelerate product movement. Businesses should consider expanding into different seller marketplaces such as Amazon or Shopify to increase your brand’s reach. By tapping into multiple sales channels, ecommerce brands can increase sales and revenue streams, ultimately helping reduce a surplus of inventory and improving overall days in inventory. 

Days in Inventory’s Impact on Growth

For ecommerce brands looking to scale, a low days in inventory can also hinder growth opportunities. Capital that could be used for marketing, product launches, or other expansion efforts, is instead tied up in unsold stock. In this case, finding a fast funding partner can give your brand access to flexible working capital. Backed by a strong cash flow, ecommerce brands can confidently invest in inventory management software, strategic demand forecasting, and targeted marketing campaigns to accelerate product turnover and maintain healthier days in inventory. 

Need funding to move inventory faster? Discover how Clearco can support your growth.