The Procurement Glossary » Obsolescence

Obsolescence

Inventory & Logistics

Definition

The loss of value when inventory becomes outdated, unusable or unsellable.

Explanation

Obsolete stock ties up cash and space and often must be written off. It results from over-ordering, design changes or slow-movers. Managing it means better forecasting, smaller buffers and end-of-life planning for parts.

Example

A product redesign renders RM80,000 of old-component stock obsolete, forcing a write-off.

Related terms

• Inventory Carrying Cost — The total cost of holding inventory — capital tied up, storage, insurance, obsolescence and shrinkage.
• Inventory Turnover — How many times inventory is sold or used and replaced over a period — a measure of inventory efficiency.
• Write-Off — The accounting removal of an asset's value when it can no longer be recovered, such as obsolete or damaged stock.
• Demand Forecasting — Predicting future demand for goods to guide purchasing, inventory and production planning.

Frequently Asked Questions

What is Obsolescence?

The loss of value when inventory becomes outdated, unusable or unsellable. Obsolete stock ties up cash and space and often must be written off. It results from over-ordering, design changes or slow-movers. Managing it means better forecasting, smaller buffers and end-of-life planning for parts.

Can you give an example of Obsolescence?

A product redesign renders RM80,000 of old-component stock obsolete, forcing a write-off.

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