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