XYZ analysis supports planning
In logistics and materials management, the XYZ analysis allows users to plan product consumption and demand. In other words, purchases of materials, products or parts can be managed with the XYZ analysis by assigning individual items to consumption classes based on their consumption structure. The aim of these KPIs is to prevent production delays due to material shortages and avoid tying up too much capital in high inventories.
XYZ – the three different consumption classes
In the first analysis step, goods are sorted into classes X, Y and Z based on how regularly they are consumed:
- X goods are constantly consumed and enable long-term planning due to highly reliable forecasts.
- Y goods experience fluctuating, often seasonal demand that is harder to plan or forecast accurately.
- Z refers to items with irregular consumption and highly volatile demand, making reliable demand forecasting impossible.
Items and materials in X consumption classes are often delivered just-in-time. Logistics professionals build up an inventory of Y goods. Z items are often ordered on demand. The downside of stocking Z items is excessive storage costs.
Classification of goods using the XYZ analysis
Goods are classified using their coefficients of variation (CV), which are calculated from historical data. The larger the analysed period, the more accurate and reliable the result. The calculation includes fluctuations in consumption (standard deviation) and average consumption (mean value). The larger the fluctuations in consumption, the lower the predictability and forecasting accuracy and the higher the coefficient of variation.
Companies generally use the following guidelines for classification:
- Class X: CV between 0% and 25%
- Class Y: CV between 25% and 50%
- Class Z: CV above 50%
While this is a good guideline, the actual classification thresholds will depend on the company's individual circumstances. In most cases, 50% of the goods fall in class X, 20% in class Y and 30% in class Z.
Combination of ABC and XYZ analysis
To get a more comprehensive picture, you can combine ABC analysis with XYZ analysis. ABC analysis looks at the optimal distribution of goods by relevance, value and turnover in the warehouse. The goods are classified by value in descending order from A to C. The XYZ analysis adds the time factor to the quantity assessment. To combine the two methods, first perform both analyses separately and then insert the results in a matrix. This allows individual combinations of ABC and XYZ to be viewed in more detail. For example, AX (high value/plannable) and BX (medium value/plannable) are suitable for just-in-time procurement because the items can be planned regardless of their value. Groups AY (high value/seasonal), BY (medium value/seasonal) and CY (low value/seasonal), which have seasonal demand, are planned on a seasonal basis following prior checking. Non-plannable goods in groups AZ (high value/non-plannable), BZ (medium value/non-plannable) and CZ (low value/non-plannable) are planned manually based on need.