Working capital & inventory turns
Free Up Working Capital: The Inventory Turns & DSI Guide
To free working capital tied up in inventory, raise inventory turns and cut days sales of inventory (DSI) by clearing excess and obsolete stock and right-sizing safety stock — without dropping fill rate. Every added turn releases cash roughly one-for-one with the inventory it removes.
Last updated July 2026
Inventory is usually a distributor's largest current asset, so it's where the most cash hides. Finance pressures operations on turns and write-offs every quarter — but blunt stock cuts risk stockouts.
The goal is precision: release cash from the SKUs that never sell while protecting the ones customers depend on.
The numbers finance actually watches
- Days sales of inventory (DSI): days to sell average stock — wholesale commonly 61–90 days.
- Inventory turns: COGS ÷ average inventory — distribution typically 3–6 turns.
- Carrying cost: 20–30% of value per year holding the stock.
- Cash conversion cycle: inventory days are usually its largest component.
How to release cash without hurting service
- Target the specific SKUs holding the most cash relative to their demand.
- Clear excess and obsolete stock that never sells.
- Right-size safety stock to real variability, not habit.
- Give finance one trustworthy view of inventory value and risk.
Why this is a fast payback
Because carrying cost runs 20–30% a year, every dollar of excess cleared returns about a quarter annually in avoided cost — before counting the one-time cash released back to working capital.
What good looks like
The four numbers finance watches, with typical distribution ranges and the mark of a best-in-class operation:
| Metric | Typical | Best-in-class |
|---|---|---|
| Days sales of inventory (DSI) | 61–90 days | Under 60 days |
| Inventory turns | 3–6 turns/yr | 6+ turns/yr |
| Carrying cost | 20–30% of value/yr | Under 20% |
| GMROI | 2.0–3.0 | 3.0+ |
Directional ranges for wholesale/industrial distribution; see the benchmarks section for detail by industry.
The numbers behind it
Frequently asked questions
What is a good cash conversion cycle for a distributor?
It varies by sector, but 50–90 days is a common range for distribution, and under 50 days is strong. Because inventory days (DSI) are usually the largest component, the fastest way to shorten the cash conversion cycle is to cut excess and obsolete stock.
What is GMROI and how do you improve it?
GMROI (gross margin return on inventory investment) is gross margin dollars divided by average inventory cost; above 1 means inventory earns more than it costs to hold. You improve it with the same levers as turns: clear slow movers, right-size safety stock, and stop over-buying low-margin stock.
What is days sales of inventory (DSI) and how do you calculate it?
Days sales of inventory (DSI) is the average number of days a company holds inventory before selling it. It is calculated as (Average Inventory ÷ Cost of Goods Sold) × 365. Lower DSI means cash cycles back faster.
What is a good inventory turnover ratio for a distributor?
Most distributors turn inventory 3–6 times per year, and best-in-class operations exceed 6 turns. Because turns ≈ 365 ÷ DSI, six turns corresponds to roughly 60 days of inventory.
How does reducing inventory improve working capital?
Inventory is usually a distributor's largest current asset, so removing excess stock releases cash roughly one-for-one back to working capital, and it also avoids the 20–30% annual carrying cost of holding that stock.
How do you cut DSI without hurting fill rate?
Target the excess and obsolete SKUs that hold cash without serving demand, and right-size safety stock to actual variability rather than cutting across the board. This lowers DSI while protecting the items customers actually buy.