XYZ Analysis

The XYZ analysis is a procedure of stock 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).

X constant consumption, fluctuations are rather rare

Y stronger fluctuations in consumption, usually for trend-moderate or seasonal reasons

Z completely irregular consumption

The XYZ analysis in the materials requirement Planning (materials requirements planning), in addition, in camp planning and in the calculation is used, frequently combined with the ABC analysis.

XYZ analysis is one of the basic supply chain techniques, often used to determine the inventory valuation inside a Store. 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 then ranked and then scored (X, Y or Z).

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 is 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.

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.

Based on the ABC and XYZ analysis there is another control mechanism, popularly known as AX control.

AX Control

What is the AX category of items of Inventory?

Inventory plays an important role for any organization as it blocks the working capital which otherwise would have earned the organization some money. While the need for having inventory can’t be denied for any running plant / machinery, its availability in controlled measures too is highly desirable. Control techniques such as ABC and XYZ analyses though done in different ways, try, at the same time, to get maximum control with little commitment of resources.

One of the ways to have still better (tight) control over the inventory with still less commitment of resources is by determining the AX category of items in a given inventory. Once ABC and XYZ analyses have been done and a list of A and X classes of items is drawn then AX category is a combination of the two categories. Going by the definition of A and X separately, AX category of items, normally, display a high consumption (A) as well as a high stock value (X). Essentially, these items are high value, in terms of overall procurement cost including their being costly. Obviously , the measures that need to be taken to keep AX inventory under control is similar to that of A or X items, viz stock less number at any given time, have tight consumption control, more sources so that supply doesn’t become a constraint when needed etc.