Plain definition
Days inventory outstanding (DIO) estimates the average days inventory is held before sale or use: average inventory ÷ cost of sales × days in the period, using consistent cost and inventory definitions.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A distributor holds average inventory of against cost of sales for a 90-day quarter of , so DIO is 22.5 days. A promotion increases stock to avoid shortages, but sales do not arrive as expected. DIO rises, tying cash up in items the purchasing manager must now review by product and expected demand.
Why it matters
DIO shows holding time, not whether every item is saleable. A lower number can also reflect stock-outs that lose profitable sales.
Practical consequence
Track DIO by meaningful category, compare it with lead times and service levels, and investigate obsolete, slow-moving, and excess stock separately before reducing orders.
Try your own numbers
Measure cash tied up in receivables and inventory, less supplier credit, then test a target cycle.
Working-capital cycle