XYZ analysis looks at the regularity (and thus implicitly the predictability) of demand for individual products. It therefore supports inventory management in the warehouse and the planning of logistics systems. It is often performed in conjunction with an ABC analysis to form ABC-XYZ classes and make decisions about economic inventory levels as well as storage locations of individual products. For example, if A products should be assigned to a dedicated fast-mover picking area, it makes sense to select products for such an area either on a seasonal basis or to choose those products that experience not only high but also regular demand (class AX).
The classification into XYZ classes is based on the coefficient of variation, i.e. the ratio of standard deviation and arithmetic mean. The higher the coefficient of variation, the lower the regularity of demand.
Since slow-moving items almost always form the vast majority of items and are usually in demand only infrequently during the period under consideration, Z items regularly form the class with the most SKUs. In a combined ABC-XYZ analysis, CZ therefore is the class with the most SKUs, but AX is often the class with the largest quantities and most order lines (see the following illustrations).
An XYZ analysis is quickly done and a useful addition to the ABC analysis. It can strengthen the validity of the conclusions from the data analysis and is a valuable tool both during the planning phase of a system as well as in operational use for regular inventory optimization.