Supply Chain Management

Dr Mariusz Maciejczak

Stocks and Warehousing Management

ABC and XYZ classification methods

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 inventory
management 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 trendmoderate 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 doesnt 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