Glossary
What is value above target? Excess inventory by item
Value above target: Value above target is the inventory value held above your own target stock levels, item by item.
Value above target = max(0, stock on hand - target stock) x unit cost
By Roufaida Bouchamha, founder
The definition
Value above target is the part of your inventory that exceeds the level you yourself set for each item, valued at unit cost. It is measured item by item, so it shows exactly where stock has accumulated, instead of a single inventory total.
How to calculate it
- Target stock per item: your maximum level, or reorder point plus order quantity, or a target expressed in days of cover.
- Stock on hand per item.
- Excess quantity = stock minus target, when positive.
- Value = excess quantity x unit cost. Add it up by item family, supplier or site.
Illustrative example, not a customer result
An item has a target of 400 units and 1,000 on hand at a unit cost of 12. The excess is 600 units, or 7,200 in value above target. Another item with 300 days of cover and no movement in months is a slow mover, whatever its target says.
What it is and is not
- It is a value held, not a saving. Releasing it depends on usage, returns or write-downs.
- It is only as good as the targets. If targets were set on old lead times or old volumes, review them first.
- It is not a carrying cost. Some teams apply a carrying rate to estimate cost, but that rate is an assumption.
Where excess usually comes from
- Minimum order quantities larger than usage.
- Lead times that shortened while reorder points stayed high (lead-time drift).
- Engineering changes that left old parts unused.
- Demand that fell without targets being updated.
How WERISCO uses it
WERISCO shows value held above your own target levels, item by item, and the parts with more than 120 days of cover, from your ERP or your exports. It does not promise to release working capital or estimate savings; your team decides what to do with each item. See the working capital page.
Questions people ask
- Is value above target the same as excess inventory?
- It is one way to measure excess inventory, using your own targets item by item instead of a general rule.
- Can I reduce it quickly?
- Only partly. Stop reordering items above target, then work through usage, transfers, supplier returns or write-downs. Each option has its own cost.
- What target should I use?
- The one your planning process already uses, such as a maximum level or a target in days of cover. If none exists, start with reorder point plus order quantity.
