Inventory management isn’t just about having enough stock – it’s about optimising your working capital and staying agile in a fast-moving economy. In 2025, Days Sales of Inventory (DSI) is more than a number on a balance sheet: it’s a powerful metric that can reveal the health of your business and the effectiveness of your supply chain strategy.
Understanding DSI: More Than Just a Formula
DSI measures the average number of days it takes a company to turn its inventory into sales. The formula is straightforward:
- DSI = (Average Inventory / Cost of Goods Sold) x Number of Days
But behind the maths lies critical insight. A low DSI generally means stock is selling quickly, freeing up cash for other business activities. A high DSI suggests excess inventory, which can tie up capital and increase storage costs. In sectors like retail, wholesale, and manufacturing, understanding your DSI can be the difference between growth and stagnation.
DSI in the 2025 Australian Landscape: Policy and Practice
This year, a mix of economic conditions and regulatory updates are shaping how businesses approach inventory:
- Rising Interest Rates: The RBA’s cash rate remains elevated in 2025, making the cost of carrying excess inventory even higher for businesses reliant on working capital loans.
- Tax Incentives for Inventory Efficiency: The federal government’s 2025-26 budget has extended instant asset write-offs for SMEs, encouraging businesses to invest in smarter inventory systems and technology to streamline stock turnover.
- Supply Chain Resilience: Ongoing global supply chain disruptions have prompted many Australian firms to reassess safety stock levels, balancing DSI efficiency with resilience.
For example, a Melbourne-based electronics distributor recently shifted from biannual to quarterly inventory reviews. By leveraging new AI-driven demand forecasting, their DSI dropped from 74 to 48 days in just six months. The result? Improved cash flow and lower warehousing expenses.
Benchmarks, Industry Examples, and Red Flags
There’s no one-size-fits-all DSI number. Benchmarks vary across industries and even between businesses of similar size. Here’s what to look for in 2025:
- Retail & FMCG: Average DSI has tightened to 35–45 days, reflecting faster product cycles and the rise of e-commerce-driven just-in-time inventory.
- Manufacturing: DSI is typically higher (60–90 days), but leading firms are now targeting under 60 days by integrating supply chain tech.
- Wholesale: Wholesalers with diversified product lines are focusing on segmenting DSI by product category to pinpoint slow-movers.
Red flags: A rising DSI could signal flagging sales, outdated stock, or supply chain inefficiencies. On the flip side, a DSI that’s too low may indicate understocking and lost sales opportunities.
In 2025, Australian accounting standards (AASB) continue to push for greater transparency in inventory reporting, making DSI trends more visible for lenders, investors, and business partners.
Optimising DSI: Practical Tips for Aussie Businesses
- Leverage Technology: Cloud-based inventory management systems with real-time analytics can help businesses monitor DSI daily, not just quarterly.
- Segment Your Inventory: Analyse DSI by product line, season, or location to identify bottlenecks and opportunities.
- Collaborate with Suppliers: Negotiate more flexible terms or use vendor-managed inventory (VMI) models to reduce your own stock burden.
- Scenario Planning: Use DSI alongside other KPIs like Days Payable Outstanding (DPO) and Days Sales Outstanding (DSO) to understand your full cash conversion cycle.
For example, a Queensland-based food importer improved their DSI by renegotiating supply contracts and switching to a dynamic reorder point system, shaving 12 days off their average inventory holding period in the first half of 2025.
Conclusion: Make DSI a Strategic Asset in 2025
DSI isn’t just an accounting metric—it’s a window into your business’s agility and financial health. With interest rates high and supply chains still in flux, smart inventory management is crucial for Australian businesses of all sizes in 2025. By tracking and optimising your DSI, you’ll unlock better cash flow, reduce waste, and position your business for growth—even in uncertain times.
