Certified Supply Chain Professional (CSCP) Practice Exam

How is days of supply calculated?

1. Number of units divided by daily usage rate

2. Inventory on hand divided by total sales

3. Number of products shipped divided by on-hand inventory

4. Total sales divided by days in the period

The correct answer is: Number of units divided by daily usage rate

Days of supply is calculated by taking the inventory on hand and dividing it by the daily usage rate, which provides a measure of how many days the current inventory will last based on the average consumption rate. This metric is critical in supply chain management as it helps businesses assess their inventory levels and determine if they have enough stock to meet customer demand without overstocking, which can lead to excess costs. Calculating days of supply in this manner enables companies to maintain lean inventory practices and optimize their supply chain operations. If the daily usage rate is known, this calculation provides a straightforward way to project how long the existing inventory will sustain operations, supporting better decision-making regarding ordering and stock replenishment. This understanding is essential for managing working capital effectively and ensuring that products are available when needed without incurring unnecessary holding costs.