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XYZ Inventory

The document discusses several types of inventory classification analyses used to categorize items including ABC analysis based on annual usage value, HML analysis based on unit price, VED analysis based on criticality, SDE analysis based on procurement difficulties, FSN analysis based on movement speed, and XYZ analysis based on demand variability measured by coefficient of variation to classify items into X, Y, and Z classes. Procedures for XYZ analysis involve calculating annual demand, average demand, standard deviation, and coefficient of variation for each item to classify them accordingly. Cut-off values for classifications may vary between organizations.

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Venkat Krishna
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861 views10 pages

XYZ Inventory

The document discusses several types of inventory classification analyses used to categorize items including ABC analysis based on annual usage value, HML analysis based on unit price, VED analysis based on criticality, SDE analysis based on procurement difficulties, FSN analysis based on movement speed, and XYZ analysis based on demand variability measured by coefficient of variation to classify items into X, Y, and Z classes. Procedures for XYZ analysis involve calculating annual demand, average demand, standard deviation, and coefficient of variation for each item to classify them accordingly. Cut-off values for classifications may vary between organizations.

Uploaded by

Venkat Krishna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Cont.

…
Types of Classifications:

Classification Criteria
ABC analysis Annual usage value of items
HML analysis Unit price of the material (does
(High, Medium, Low) not depend on consumption)
VED analysis Criticality of the item (material
(Vital, Essential, Desirable) criticality)
SDE analysis Procurement difficulties
(Scarce, Difficult, Easy)
FSN analysis Issue from stores
(Fast, Slow, Non-moving)

1
XYZ Analysis
• Items are classified into X, Y and Z classes based on demand variability
• Variability is measured by the coefficient of variation (CV)
• Cut off line depends on organization
X Class
• Fixed size of need - small periodic fluctuations
• High accuracy of forecasting - daily demand variability - low (CV ≤ 0.3)
Y Class
• Moderate fluctuations in need - Average accuracy of forecasting
• Daily demand variability intermediate (0.3< CV ≤ 0.56)
Z Class
• Irregular demand need - low accuracy of forecasting
• Daily demand variability – high (CV > 0.56)
Procedure of XYZ analysis
• Calculate - annual demand, average demand.
• Arrange the items in the decreasing order of their annual demand
• Calculate the standard deviation (SD), Coefficient of variation (CV) of each item
• Calculate item percentage, cumulative of item percentage and then categories the
inventory item according to demand variability

Annual Demand = D1 + D2 + … + Dn
𝐷1+𝐷2+..+𝐷𝑛
Average Demand (Mean) D = 𝑛

(D – D1)2 + (D – D2)2 + (D – D3)2


Standard Deviation (SD) = 𝑛−1

𝑆𝐷
Co-efficient of Variation (CV) = 𝑀𝑒𝑎𝑛
Problem - XYZ Analysis
Sixteen items are kept in the inventory. The details regarding the
number of items used for 3 months (August, September and October)
are given below. Classify the items into X, Y and Z class.
XYZ Analysis
Annual Demand = D1 + D2 + D3
𝐷1+𝐷2+𝐷3
Average Demand (Mean) D = 𝑛
XYZ Analysis

(D – D1)2 + (D – D2)2 + (D – D3)2


Standard Deviation (SD) = 𝑛−1

𝑆𝐷
Co-efficent of Variation (CV) =𝑀𝑒𝑎𝑛
XYZ Analysis
VED Analysis
• VED stands for vital, essential and desirable
• Classify the maintenance spare parts and denotes the essentiality of stocking
spares
V class
• Render the equipment or the whole line operation in a process totally and
immediately inoperative or unsafe.
• These items go out of stock or are not readily available, there is loss of
production for the whole period.
E class
• Reduce the equipment’s performance but do not render it inoperative or unsafe.
• Non-availability of these items may result in temporary loss of production or
dislocation of production work.
• Replacement can be delayed without affecting the equipment’s performance
seriously.
D class
• Mostly non-functional and do not affect the performance of the equipment.
FSN Analysis
• Groups materials into three categories as Fast-moving, Slow-moving and Non-
moving (dead stock).
• Items are sorted and analysed according to the turnover ratio it possesses
• Turnover Ratio= Annual Demand/Average Inventory
• Cut off line depends on organization

F Class
• It is generally used item and used in large amount – 10 to 15 % of total item.
• stock turnover ratio is greater than 3

S Class
• It is used in minimum amount as compared to F-class item – 30 to 35 % of total
item - stock turnover ratio is between 1 and 3

N Class
• It is 60 to 65 % of total items - stock turnover ratio is below
HML Analysis
• HML analysis is similar to ABC analysis the difference is that which
uses “usage value, price” as criteria. It is based on Pareto principle or
the 80/20 rule.

H Class
• costly item - 10-15% of total item
M Class
• low cost item as compared to H class items - 20-25% of total item
L Class
• low class item - 60-70% of total items

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