Glossary
What is Excess & Obsolete (E&O) Inventory Reserve?
Last updated July 2026
An excess and obsolete (E&O) reserve is the portion of inventory value a company writes down because it is unlikely to sell. It is usually calculated by age and consumption tiers.
Also known as: E&O reserve, obsolescence reserve
E&O Reserve = Σ (at-risk inventory value × age/consumption risk factor) Accounting standards require companies to reserve for inventory whose market value has fallen below cost. In practice, teams bucket SKUs by how long they've sat and how fast they consume, then apply a rising risk factor.
Industrial and MRO operations commonly carry 15–25% excess or obsolete stock, so the reserve — and the write-offs behind it — can be a material, recurring drag on earnings.
Disciplined operations hold E&O under 7%; MRO commonly 15–25%.
Sources: R4 / MRO benchmarks, Industrial Supply Magazine
Part of Excess & obsolete inventory.
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