What is ABC-XYZ analysis?
ABC-XYZ analysis puts each product into one of nine groups. The ABC part ranks products by their share of revenue. The XYZ part ranks them by how much their demand changes.
Each group needs a different stock policy. An AX product has high value and steady demand, so a forecast and a low safety stock work well. A CZ product has low value and erratic demand, so a simple policy or stock to order is often correct.
The formula
ABC: sort by revenue. A = the products that give the first 80% of revenue, B = the next 15%, C = the last 5%.
XYZ: coefficient of variation (CV) = standard deviation of demand ÷ average demand.
X = CV below 0.5, Y = CV from 0.5 to 1.0, Z = CV above 1.0.
- Companies use different limits. Keep the same limits over time, so the groups stay comparable.
A worked example
Two Cold Craft products
- Madagascar Vanilla 500ml tub: a large share of revenue, and weekly demand with a CV of 0.3. It is an AX product.
- Honeycomb Crunch Frozen Yoghurt 150ml cup: a small share of revenue, and demand that jumps with events, with a CV of 1.4. It is a CZ product.
Forecast the vanilla tub carefully and keep its safety stock low. Hold a small buffer of the honeycomb cup, and review it each month.
ABC-XYZ analysis in Miridia
Miridia Planner segments products by ABC and XYZ from your real revenue and demand history. It also screens each history, and a short or intermittent history gets a smaller pool of forecast models.