ABC analysis classifies products by value, XYZ analysis by how regular their demand is. Together they give nine classes, and each class gets a different stock policy: management effort goes to valuable products, simple products are run with simple rules.
ABC: value share
- Calculate the consumption value of each product: quantity × unit cost (past or forecast).
- Sort products by value, largest first.
- Classify by cumulative share: A is the first 80% of value, B the next 15%, C the remaining 5%.
Example
Ten products with a total consumption value of 1,000,000:
| Product | Consumption value | Share | Share of products before | Class |
|---|---|---|---|---|
| P1 | 400,000 | 40% | 0% | A |
| P2 | 250,000 | 25% | 40% | A |
| P3 | 150,000 | 15% | 65% | A |
| P4 | 80,000 | 8% | 80% | B |
| P5 | 50,000 | 5% | 88% | B |
| P6 | 30,000 | 3% | 93% | B |
| P7 | 20,000 | 2% | 96% | C |
| P8 | 10,000 | 1% | 98% | C |
| P9 | 7,000 | 0.7% | 99% | C |
| P10 | 3,000 | 0.3% | 99.7% | C |
The class is given by the cumulative share of the products before it, so the most valuable product is always A. Result: 30% of the products (3) make up 80% of the value.
XYZ: regularity of demand
The coefficient of variation of each product’s period-by-period demand is calculated:
CV = standard deviation / meanX: CV < 0.5 regular demandY: 0.5 ≤ CV < 1 fluctuating demandZ: CV ≥ 1 irregular demandExample
Six months of demand: 100, 120, 80, 110, 90, 100.
mean = 100deviations = 0, 20, −20, 10, −10, 0variance = (0 + 400 + 400 + 100 + 100 + 0) / 6 = 166.7standard deviation = 12.9CV = 12.9 / 100 = 0.13 → XNine classes, nine policies
| X (regular) | Y (fluctuating) | Z (irregular) | |
|---|---|---|---|
| A | Continuous monitoring, frequent small orders, low safety stock | Frequent forecast updates, moderate safety stock, planner approval | Review product by product; make to order where possible |
| B | Automatic reorder point | Moderate safety stock, monthly review | Limited safety stock; transfers and alternative suppliers |
| C | Large lots, infrequent orders | Simple reorder point rule | Question keeping it in stock; candidate for removal from the range |
In VidiStock
VidiStock recalculates the ABC class by consumption value over the forecast horizon (forecast × unit cost) and the XYZ class by the coefficient of variation of the product’s demand series in every forecast run. The ABC/XYZ screen shows the nine-cell matrix, the number of products and the consumption and stock value in each cell, and the products whose class changed since the previous run. Classes can also be calculated per warehouse. Details: ABC / XYZ analysis.