In essence, the XYZ analysis is a classification method for inventory based on the variability of their demand. Here's a breakdown:
X-Items: These are characterized by a consistent turnover over time. The future demand for this product group can be reliably forecasted to ensure sales aren't impacted by stockouts, and excess stock doesn't clog up the warehouse. These items typically have a variability coefficient of 0-10%.
Y-Items: While the demand for Y-items isn't as steady as X-items, their variability can somewhat be anticipated. This variability often arises due to known factors like seasonality, product life cycles, competitors' actions, or economic conditions. Accurate demand forecasting for these products can be more challenging. Their variability coefficient lies between 10-25%.
Z-Items: These have a highly unpredictable or sporadic demand. The absence of discernible trends or predictable causative factors makes their demand forecasting nearly impossible. Typically, such items are minimized or even eliminated from the inventory. However, some businesses, if they have the means and storage capacity, stock up on these, anticipating a sales surge. These products have a variability coefficient of over 25%.
In statistics, variability denotes the differences in a given metric's levels among various units of an analyzed composition during a specific research period or point.
Lastly, the variability coefficient is often expressed as a percentage and is determined by the ratio of the standard deviation (σ) to the mean (μ).