How to increase the effectiveness of using ABC-XYZ analysis?

17 Июня 2014

Introduction.

Glad to greet you on our portal, which is dedicated to technical questions, relevant for application software developers businessprocess management companies.

My name is Dmitry Kalchenko. This is my first article on this information portal. Thanks to her, I hope, we’ll get acquainted. I would like to note, that the topics to be addressed in my articles, will be interesting, first of all, for a business owners, directors, logists and IT staff database companies, which conduct commercial activity with a wide range of imported goods. Such companies daily face with questions sales management, procurement, inventory logistics, transport logistics, etc. It is planned that each article of the series will be a continuation of the general theme is to increase efficiency of business processes.

Task.

Develop an IT solution rank product range for the subsequent calculation of projections of sales, procurement, insurance reservesand turnover.

Solution.

So, let's get started. Much has been said and written about the "80/20" Vilfredo Pareto. It formed the basis for the famous ABC-XYZ analysis. Not going to happen again. This article will show how you canuse ABC-XYZ analysis to solve tasks that, at first glance, does not refer to the definition of sales of goods in Commerce.

As you know, ABC-XYZ analysis allows you to divide products into nine groups. Such goods must be ranking for a differentiated approach in identifying and monitoring indicators such as:

  • insurance reserve, which takes into account the volatility of demand goods;

  • insurance reserve, which takes into account the instability of supply of goods;

  • therate of turnover of goods.

In addition, the limited financial or physical abilities for the purchase and storage of goods, ranking allows you to setpriority: which product must be purchased in the first place, and what is the last.

At this point I would like to cite an example.

Figure 1 - ABC-XYZ example analysis for a group of products obtained after the implementation of the described IT-solutions.

Figure 1 clearly demonstrates the principle manifests itself as the "80/20".

Red color (Group "А") highlighted the goods, the share of sales in the overall sales of 20% and more cooler colors: green("B") and blue ("C") are the other products, which account for 80 per cent, respectively. In the right part of the figure shows the distribution of the groups of the ABC in the months. From the example, it can be concluded that, in General, the distribution of sales of goods from month to month do not repeat the general trend over a longer period. The product of group "A" often falls to goods groups "B" and "C", and vice versa. The reason for this shortage of goods associated with delayed shipments, the increased local demand, and more. Thus, ABC-XYZ analysis can provide the basis for ranking the products, but cannot give a 100% correct criterion. Therefore, assigning ranks products should hold expert product groups, based on 100% without relying on ABC-XYZ data analysis. Let me give you an example. Item 1 belongs to the group "A", item 2 - "C" group. However, the sale of goods is not possible in the absence of 1 item 2 (as it is not possible to assemble the system unit computer with all components and absence of buildings). So for products 1 and 2, assign the same rank, because the company must give equal attention to both products, despite the fact that the goods in Group 2 "with" income (orturnover).

In this example, after the ABC-XYZ analysis product shave been assigned grades: rank 1 - goods group "A", rank 2 - goods group "B", rank 3 - goods group "C" rank N - new products, rank X - replacement products (Figure 1 this column "Rank"). This ranking will allow for a certain period to fix the picture and does not take into account fluctuations of goods between groups of the ABC. You only need to periodically review the compliance of designated goods ranks the current situation. It is recommended that you use the same approach to ranking the products by XYZ. Have appointed the rank of  X is for products with stable demand, the rank of Y - variable demand, rankZ - with unstable demand.

Conclusions.

Figure 1 show, that, often, mathematical analysis is not the same as with the expert evaluation of the ranking. Such a conclusioncan be drawn by comparing the columns: "T" - turnover and "S"- statistics with columns "Rang" and "Rang XYZ", which avoids many errors. Also, using the report data, you can control the rate of turnover of goods of the same rank (of course, for products with related consumer characteristics). Turnover rates must be within the acceptable range, the average for the group as a whole. When the rules of averages (especially for products in group A) a causative analysis of such deviations. Perhaps there is a problem with the productor with the sales forecast.

I await your comments (registration required). Thank you. Dmitry Kalchenko.

Translation from Russian Tatyana Kalchenko.
 
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