KPI Focus
KPI excess and obsolete measures how effectively the operative buyer manages and minimizes the financial impact of excess and obsolete material.
The KPI is not about eliminating E&O completely, but about:
- visibility
- timely action
- capital control
Content….
Why E&O Management Is a Core Operational KPI
Excess and obsolete material ties up operational capital and creates:
- unnecessary inventory holding costs
- write-offs and margin erosion
- distorted planning data
- reduced supply chain flexibility
E&O can occur due to:
- demand changes
- forecast errors
- order rescheduling
- minimum order quantities (MOQ)
- supplier constraints
What defines professional operational purchasing is how quickly and effectively E&O is identified and acted upon.
KPI Definition – Excess & Obsolete Material (Level 1)
What the KPI measures
The KPI measures:
- the total value (USD) of excess and obsolete material
- that is linked to operational purchasing decisions
This KPI answers the question:
“Do we actively control the capital tied up in excess and obsolete inventory?”
KPI Scope
- Applies to:
- raw materials
- components
- purchased semi-finished goods
- Managed by:
- Operative buyer (in cooperation with planning and logistics)
- Measurement frequency:
- Monthly (recommended)
- Quarterly for slow-moving categories
Definition of Excess & Obsolete
- Excess: Material not required according to current demand plan, but still usable
- Obsolete: Material no longer usable due to:
- design changes
- discontinued products
- expired specifications
Both represent capital at risk.
KPI Structure – Value-Based Control
Step 1 – Identify E&O
- Material classified as:
- excess or obsolete
- Based on:
- inventory age
- demand outlook
- product lifecycle status
Step 2 – Quantify Financial Impact
- Inventory value calculated in USD
- Value visible per:
- material
- supplier
- category
Step 3 – Action Taken
For each E&O item, the operative buyer initiates or supports actions such as:
- rescheduling open POs
- cancelling outstanding quantities
- negotiating returns or credits
- identifying alternative usage
- supporting phase-out planning
KPI Measurement
Core KPI
- E&O Value (USD)
Optional normalized view:
- E&O Value as % of Annual Spend
- E&O Value as % of Inventory Value
These help benchmarking and trend analysis.
KPI Target (Example)
Targets must reflect business reality.
Example:
- E&O value:
- ≤ X% of annual operational spend
- No E&O item without:
- owner
- action plan
- review date
Data Source (KPI Database)
Typical sources:
- Inventory reports
- ERP material master
- Obsolescence reports
- Planning data
The KPI database acts as:
- a financial risk overview
- a prioritisation tool
- a discussion base with planning and suppliers
Desired Effect of Measuring This KPI
The organization aims to:
- reduce capital tied up in non-moving inventory
- improve cash flow
- strengthen planning discipline
- drive proactive behavior in open PO management
- increase awareness of total cost, not just price
What This KPI Does Not Measure
This KPI does not measure:
- root causes of E&O
- forecast accuracy
- supplier flexibility
These belong to:
- planning KPIs
- tactical sourcing analysis
- supplier development discussions
Link to Buyer Performance
High or increasing E&O value often indicates:
- slow reaction to demand changes
- weak open PO control
- insufficient coordination with planning
Low and stable E&O value indicates:
- proactive order management
- strong capital awareness
- disciplined operational routines
Future Development (Higher Maturity)
At higher maturity levels, this KPI can evolve to:
- E&O prevention rate
- recovery value achieved (%)
- supplier-specific E&O exposure
These are future development KPIs, not required at the foundational level.
Summary
- Excess & Obsolete material is a capital risk
- This KPI ensures:
- visibility
- accountability
- timely action
- The operative buyer plays a key role in protecting operational capital
Use the tag KPI to find more information about procurement KPIs. Learn more about KPI generic defined by Wikipedia.