Inventory Time on Hand (TOH)

Time on Hand (TOH) might not seem like a unit of measure; however, it defines a crucial unit of measure for your inventory.  Perhaps you never thought to ask, “How many days of inventory do we have?” It is a vital inventory metric you should know for each product on hand since it will drive your product replenishment process.

TOH is a calculation to determine how many days remain before a product is out of stock based on your current stocking levels.

There is an additional metric we use for replenishment called Time on Hand All (TOHA).  Time on Hand All (TOHA) is like TOH but uses both the current stocking level, quantities on order, and in-transit from your suppliers for a product to your warehouses.

In order to calculate TOH, you must first calculate Sales Velocity (SV) aka daily demand.  SV is essentially the average number of units sold per day over a specified period (How to calculate SV will be discussed in another article).  Once you have SV for a product, you multiply it by the current quantity on hand to determine the TOH.  TOHA is calculated the same way but includes the quantity on order from your supplier plus the current quantity on hand.

You ask how long until your inventory runs out using the TOH and TOHA?  Let’s say you have 100 units in stock and your SV is 5 units per day.  Using the above formula to calculate TOH take 100 units and divide by 5 units per day which equals 20 days of inventory remaining (100/5 = 20).

Using the previous example let’s calculate TOHA using the same 100 units in stock and 25 more units on order from your supplier.  Add the 25 inbound units with 100 units in stock for a total of 125 units.  The SV is still 5 units per day. To calculate TOHA, take 125 units and divide by 5 units per day which equals 25 days of inventory remaining ((100 + 25)/5 = 25).

25 days inventory remaining is a bit misleading because it does not consider transit time for the quantity on order when included with the TOHA.  Let’s use the example as is but add a transit time of 30 days.  You still have 25 days of inventory remaining, but you will have 10 days out of stock before units on order arrive.  Keep transit times in mind when using the TOHA.

Put simply, you can calculate your TOH for a product by dividing your quantity on hand by your daily demand.  You can calculate TOHA the same way as TOH except add your quantity on order from your supplier to the units in stock.  TOH and TOHA will be the same value when there are no inbound units from your supplier.

Communique for Marketplaces use both TOH and TOHA as part of the standard dataset for replenishment reports so you can easily see your days remaining for each product.

Remember, TOH and TOHA are units of measure which helps you understand the current state of your inventory so you can make better decisions and take action to better manage inventory levels and reduce out of stocks.

Rule of thumb on the marketplaces:  If you are out of stock, you cannot sell.

Are you ready to automate your workflows to gain maximum productivity?  Take a look at one of our recent projects to learn more about how we can help with your business automation, 3rd party integrations, and reporting, contact us.

We hope this post has been helpful.  Any questions or comments, please feel free to post.