Supply Chain Management

Dr Mariusz Maciejczak

ABC and XYZ classification methods

Stocks and Warehousing Management

Inventory …to make it run smoothly

Even the simplest and most highly automated inventory control system needs some effort to make it run smoothly. For some items, especially cheap ones, this effort is not worthwhile.

Very few organisations include, for example, routine stationery or nuts and bolts in their stock control system. At the other end of the scale are very expensive items that need special care above the routine calculations. Aircraft engines, for example, are very expensive, and airlines have to control their stocks of spare engines very carefully.

ABC analyses

An ABC analysis puts items into categories that show the amount of effort worth spending on inventory control. This is a standard Pareto analysis or ‘rule of 80/20’, which suggests that 20% of inventory items need 80% of the attention, while the remaining 80% of items need only 20% of the attention.

ABC analyses define:● A items as expensive and needing special care● B items as ordinary ones needing standard care● C items as cheap and needing little care.

Typical results for an ABC analysis

Case study– ABC application

Case study– ABC application

XYZ analysis

The XYZ analysis is a procedure of inventorymanagement in the management economics, with which on the basis empirical experiences, results are usually assigned to a classification by bill explosions or by the determination by variation and/or fluctuation coefficients of goods and articles concerning its turnover regularity (consumption and its predictableness).

XYZ analysis

Articles, which are sold very regularly and in to some extent constant numbers of items (e.g. Bulbs), are called X-articles, while the Z-class contains such articles, whose sales runs very irregularly or even stochastically (like e.g. Spare parts). Sometimes the XYZ analysis is called also RSU analysis, with R for regular, S for and U for irregular.

Classes become summarized as follows:• X constant consumption, fluctuations are rather rare• Y stronger fluctuations in consumption, usually for trend-

moderate or seasonal reasons• Z completely irregular consumption

XYZ analysis

XYZ analysis is one of the basic supply chain techniques, often used to determine the inventory valuation inside a stores. It's also strategic as it intends to enable the Inventory manager in exercising maximum control over the highest stocked item , in terms of stock value.

A system of categorization, with similarities to Pareto analysis, the method usually categorizes inventory into three bands with each band having a different management control associated. Although different criteria may be applied to each category the typical method of “scoring” an inventory item is that of annual stock value of said item (qty in stock X cost of item) with the result thenranked and then scored (X, Y or Z).

XYZ analysis

Bandings may be specific to the industry but typically follow a 70%, 90%, 100% banding in that X class items represent 70% of the stock value (although they may account for 20% number wise), Y class items fall between 70% and 90% of the annual stock value with C class the remaining. In practical terms the complex high cost materials typically fall into the X class items, with the consumable, low cost (and typically fast moving) classed as X class.

Not all stock is equally valuable and therefore doesn’t require the same management focus. The results of the XYZ analysis provide information that helps evaluate how each inventory part should be monitored and controlled. These controls are typically:

• X class items which are critically important and require close monitoring and tight control – while this may account for large value these will typically comprise a small percentage of the overall inventory count.

• Y class are of lower criticality requiring standard controls and periodic reviews of usage.

• Z class require the least controls, are sometimes issues as “free stock” or forward holding.

XYZ analysis

Classification of inventory in terms of XYZ is also quite strategic as It can form the basis of various activity including leading plans on alternative stocking arrangements (consignment stock), reorder calculations and can help determine at what intervals inventory checks are carried out (for example X class items may be required to be checked more frequently than Z class stores.

Planning strategies

Planning strategies