How to Calculate and Optimize the Days Sales in Inventory Formula for Industrial Maintenance

What is the Days Sales in Inventory Formula and How Do You Calculate It?

At its most fundamental level, the days sales in inventory (DSI) formula measures the average number of days it takes for a company to turn its inventory into sales. In a traditional retail or manufacturing-for-sale context, this is a critical liquidity metric. It tells leadership how quickly cash tied up in stock is being converted back into revenue.

The standard mathematical formula is:

DSI = (Average Inventory / Cost of Goods Sold) x 365

To break this down for a standard fiscal year:

1. Average Inventory: This is typically calculated as (Beginning Inventory + Ending Inventory) / 2.
2. Cost of Goods Sold (COGS): This represents the direct costs of producing the goods sold by a company.
3. 365: The number of days in the period (usually a year).

However, if you are a maintenance manager or a facility operator in 2026, you know that applying this formula literally to your spare parts room feels like trying to fit a square peg in a round hole. In the world of Maintenance, Repair, and Operations (MRO), we don't "sell" our inventory to customers. We "issue" it to technicians to keep the plant running.

Therefore, for industrial professionals, the formula evolves into Days Inventory on Hand (DIOH), where "Cost of Goods Sold" is replaced by Cost of Goods Used (COGU).

MRO DSI = (Average Spare Parts Value / Annual Value of Parts Issued) x 365

If your facility carries an average of $1,000,000 in spare parts and you consumed $500,000 worth of parts over the last year, your DSI is 730 days. This means, on average, a part sits on your shelf for two years before it is used. Is that good? Is it bad? The answer depends entirely on the criticality of the assets those parts support and your strategy for inventory management.

Why is "Sales" the Wrong Word for Maintenance (and What Should You Use Instead)?

In a warehouse full of bearings, seals, and motors, the word "sales" is a misnomer. When a maintenance team uses the days sales in inventory formula, they aren't looking for profit margins; they are looking for working capital optimization.

In the industrial context, we must pivot from a "sales" mindset to a "utilization" mindset. This is where the concept of Days Inventory Outstanding (DIO) or Days Inventory on Hand (DIOH) becomes more accurate.

The "Cost of Goods Sold" (COGS) in a factory setting is often an aggregate number that includes labor, overhead, and raw materials. For a maintenance department, using the total COGS of the company will result in a DSI that is artificially low and completely useless for decision-making. Instead, you must isolate the Cost of MRO Supplies Used.

The "Cost of Goods Used" (COGU) Framework

To get a true reading of your maintenance efficiency, your denominator should only include the value of the parts that left the storeroom and were applied to a work order. By using work order software, you can track exactly which parts were "sold" to which machine.

Why does this distinction matter?

• Accuracy: Using total company COGS masks the inefficiencies of the maintenance department.
• Accountability: It allows maintenance managers to justify their budget based on actual consumption rates.
• Obsolescence Tracking: It highlights "dead stock"—parts that have a DSI of infinity because they haven't been used in years.

According to the Society for Maintenance & Reliability Professionals (SMRP), world-class organizations maintain a tight grip on their MRO turnover. If you aren't distinguishing between "sold" and "used," you are likely overestimating your inventory health.

Why Does DSI Matter for Maintenance Managers in 2026?

In the current industrial landscape, the days of "just-in-case" inventory are fading. With the rise of AI predictive maintenance, the pressure to reduce carrying costs while maintaining 99.9% uptime has never been higher.

A high DSI indicates that capital is "trapped" in the warehouse. This isn't just a line item on a balance sheet; it represents real-world costs that drain your department's budget:

1. Carrying Costs: It is a common industry benchmark that the annual cost of holding inventory is 20% to 30% of its total value. This includes insurance, taxes, warehouse space, climate control, and the labor required to count it.
2. Obsolescence: In 2026, technology moves fast. A PLC or sensor sitting on a shelf for 1,000 days might be obsolete by the time you need it.
3. Degradation: Bearings can develop flat spots; seals can dry out; lubricants can settle. A high DSI often leads to "new" parts failing immediately upon installation because they sat too long.

Conversely, a DSI that is too low is a red flag for stockout risk. If your DSI for critical pump seals is only 5 days, and your lead time from the supplier is 14 days, you are one failure away from a catastrophic shutdown.

The goal isn't to reach the lowest DSI possible; it's to reach the optimal DSI that balances asset management reliability with financial lean principles.

How Do You Implement This Formula in a Real-World Facility?

Calculating the days sales in inventory formula once a year for an annual report is easy. Using it to drive daily operational excellence is hard. To implement this effectively, you need a structured approach to data hygiene and software integration.

Step 1: Clean Your Data

You cannot calculate an accurate DSI if your inventory records are a mess. This requires a rigorous "wall-to-wall" physical count to establish your Beginning Inventory Value. Ensure that every part is categorized (e.g., Consumables, Critical Spares, Insurance Spares).

Step 2: Integrate Your CMMS and ERP

Your CMMS software tracks the "usage" (the parts issued to work orders), while your ERP typically tracks the "cost" (the purchase price). To get a real-time DSI, these two systems must talk to each other. In 2026, most modern facilities use integrations to ensure that when a technician pulls a bearing, the value is instantly deducted from the inventory balance and added to the "Cost of Goods Used" tally.

Step 3: Calculate by Category

Never calculate a single DSI for the entire storeroom. It provides a "blended" number that hides problems. Instead, calculate DSI for:

• Fast-movers: V-belts, filters, lubricants. (Target DSI: 30–60 days)
• Critical Spares: Specialized motors, custom gearboxes. (Target DSI: 365–730 days)
• Insurance Spares: Large components that rarely fail but cause months of downtime if they do. (Target DSI: 1,000+ days)

Step 4: Establish a Review Cadence

DSI is a lagging indicator. To make it actionable, review it quarterly. If you see the DSI for "Fast-movers" creeping up from 45 to 90 days, it’s a sign that you are over-ordering or that your PM procedures have changed, rendering those parts less necessary.

What is a "Good" DSI Number for Industrial Spares?

There is no "one-size-fits-all" answer, but we can look at benchmarks from organizations like the National Institute of Standards and Technology (NIST) and industry leaders.

In a 24/7 continuous manufacturing environment (like a paper mill or chemical plant), the benchmarks usually look like this:

The "Criticality" Exception

If you are managing predictive maintenance for compressors, you might have a spare centrifugal screw that costs $150,000. If that part hasn't moved in three years, your DSI for that category will look "bad" on a spreadsheet. However, if the lead time for that part is 12 months and the cost of downtime is $50,000 per hour, a DSI of 1,095 days is actually a brilliant strategic move.

This is why you must use a Decision Framework:

• High Criticality + Long Lead Time: Ignore high DSI; focus on availability.
• Low Criticality + Short Lead Time: Aggressively target a low DSI (30 days or less).
• High Value + High Usage: Use Economic Order Quantity (EOQ) to find the sweet spot.

How Do You Lower Your DSI Without Risking Downtime?

Lowering your DSI is essentially a quest to reduce the numerator (Average Inventory) while maintaining or slightly increasing the denominator (Efficiency of Use). Here are the strategies that separate reactive plants from predictive ones in 2026.

1. Eliminate Obsolete Inventory (Dead Stock)

Most storerooms are "industrial museums." They contain parts for machines that were decommissioned five years ago. By performing a "Dead Stock Analysis"—identifying any part with a DSI of 0 over the last 24 months—you can purge the warehouse. Selling these parts back to a vendor or a liquidator immediately lowers your average inventory value and your DSI.

2. Transition to Just-in-Time (JIT) for Consumables

For non-critical items like gloves, rags, and standard fasteners, stop stocking them in bulk. Use Vendor Managed Inventory (VMI) where the supplier owns the stock until you use it. This keeps the "Average Inventory Value" off your books entirely, effectively bringing that portion of your DSI to near zero.

3. Standardize Components

If your facility has ten different brands of motors and fifteen different types of grease, your DSI will naturally be high because you have to stock "safety stock" for every variation. By standardizing on a single brand of motor or a multi-purpose lubricant, you can reduce the total volume of inventory needed to support the same number of assets.

4. Leverage Predictive Insights

The most effective way to lower DSI is to know when you will need a part. If you use predictive maintenance for bearings, you don't need to keep a spare bearing on the shelf for 300 days. You only need to order it when the vibration sensors indicate a failure is likely in the next 30 days. This allows you to move from "Just-in-Case" to "Just-in-Time" for even high-value components.

How Does AI and Predictive Maintenance Change the DSI Calculation?

By 2026, the days sales in inventory formula is no longer just a historical report; it’s a predictive tool. Traditional DSI looks backward: "How did we do last year?" Modern AI predictive maintenance looks forward: "What will our DSI need to be next quarter?"

From Historical COGU to Predicted COGU

AI models can now analyze your equipment maintenance software data to forecast exactly which parts will be consumed in the coming six months. This changes the denominator of our formula from "Past Usage" to "Forecasted Usage."

Predictive DSI = (Current Inventory / Forecasted Consumption) x 365

This shift allows maintenance managers to be surgical. If the AI predicts a series of overhauls on your conveyor systems, you can ramp up inventory just before the need arises. This keeps your average inventory low throughout the year, significantly improving your financial metrics without increasing the risk of a stockout.

Prescriptive Inventory Management

We are also seeing the rise of prescriptive maintenance. In this model, the system doesn't just tell you a part will fail; it automatically checks your inventory, calculates the DSI for that part category, and—if the DSI is too low—generates a purchase order. This automation ensures that the days sales in inventory formula is constantly being optimized in the background, 24/7, without human intervention.

Troubleshooting Common DSI Problems

If you start measuring DSI and the numbers look "wrong," check these three common symptoms:

Symptom: DSI is extremely low, but we are always out of parts.

• The Cause: You likely have a "Ghost Inventory" problem. Parts are being checked out of the system but not actually used, or they are being physically taken without being scanned. This inflates your "Usage" (the denominator) and deflates your "Inventory Value" (the numerator).
• The Fix: Implement mobile CMMS with barcode scanning to ensure every part movement is captured at the point of use.

Symptom: DSI is rising, but our spending is flat.

• The Cause: Price inflation or "hidden" stock. If the unit cost of your parts is increasing, your "Average Inventory Value" will rise even if the physical quantity of parts stays the same.
• The Fix: Calculate DSI based on units rather than dollars for a clearer picture of physical stock movement.

Symptom: DSI is high, but the Finance department is still complaining about downtime.

• The Cause: You have the "Wrong" inventory. You are likely overstocked on low-value consumables (which drives up DSI) but understocked on high-value critical spares.
• The Fix: Perform an ABC/XYZ analysis. Focus your DSI reduction efforts on "Category C" items (low value, high volume) and your availability efforts on "Category A" items (high value, low volume).

Summary: The Strategic Value of DSI in 2026

The days sales in inventory formula is more than a math exercise for accountants. For the modern maintenance professional, it is a pulse check on the health of the entire operation.

A well-managed DSI reflects a department that is in control of its data, its assets, and its future. It shows that you understand the trade-off between the cost of capital and the cost of downtime. By adapting the formula to the MRO context—focusing on "Cost of Goods Used" rather than "Sales"—and leveraging tools like predictive maintenance for motors, you can transform your storeroom from a cost center into a strategic asset.

In 2026, the most successful plants aren't the ones with the most parts; they are the ones with the right parts, at the right time, backed by a formula that proves their efficiency.