How do I benchmark inventory against industry peers?

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AcadiFi · Accepted Answer

Benchmarking inventory requires three layers: level, trend, and quality. Pulling a single median number misses structural differences. Step one is normalize. Express inventory as days of inventory on hand or as a percentage of total assets. For Silvermark Appliances, inventory is 22% of assets versus an industry median of 15%, a 700 basis point gap worth investigating. Step two is trend. Plot the firm's DIO against the industry 25th, 50th, and 75th percentiles over eight quarters. If Silvermark migrated from the 50th percentile to the 80th percentile while peers held steady, obsolescence risk is rising. Step three is quality adjustments. Compare the mix of raw materials, work-in-process, and finished goods. A firm with disproportionately high finished goods versus peers is often the canary for a demand slowdown. ```mermaid flowchart TD A[Raw
Data] --> B[Normalize
to DIO] B --> C[Compare
vs Peers] C --> D{Gap
Meaningful?} D -->|Yes| E[Decompose
by Mix] D -->|No| F[Monitor
Only] ``` Always cite the peer group definition. Pulling SIC code matches is lazy; curate a peer set based on customer, distribution, and margin structure.

How do I benchmark inventory against industry peers?

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