Once upon a time, a store owner, who was also a seller, could easily remember all the products in his assortment. Tell about the features of each, the story, how effective the product is, knew exactly how it is sold, when to order more...
With the development of retail, managing the movement of goods requires different approaches. Sales accounting and analytics systems and assortment management complement the experience of store or retail chain employees.
Serious decisions, such as removing a product from the range, are not made so easily. Both the category manager and the store manager need justification for such actions.
Therefore, one type of analysis is not enough. A combination of several types is used (in other words, cross-analysis).
In this article we use the example of the product group “ Confectionery“We will consider the main approaches to organizing cross-analysis. We’ll also find out who is to blame for the fact that Raffaello is a product with unstable sales.
When working with the assortment of a chain or store, a cross-approach is used, which includes ABC and XYZ analyses.
What is the point and why do we choose them?
ABC analysis- this is a common method of studying the assortment, with which you can determine the contribution of each product to the turnover and profit of the store, distribute products into categories for effective management assortment.Basic pros ABC analysis:
- rationalization of assortment management - makes it clear the importance of goods, distributes the efforts of store managers and category specialists;
- quick results and quick application of management decisions;
- if carried out regularly, comparison with previous periods makes it possible to track stages life cycle goods.
- many additional factors must be taken into account, such as new products, luxury products, etc.
- you need an array of data for analytics for a certain period: a database of receipts, sales or other retail data;
- Stability in the goods market is important; if some unforeseen situations occur (sharp inflation, political unrest, etc.), ABC analysis data may be inaccurate.
XYZ analysis determines the stability of product sales over a certain period. The results allow you to categorize products and allocate storage space, inventory levels, and delivery arrangements.
pros XYZ analysis:
- data for managing the range of goods and warehouse stocks, organizing work with suppliers;
- setting different options delivery for different categories goods;
- using analysis to predict demand stability;
- identification of problem stores with unstable sales;
- identification of commodity holes, correction of the goods supply system.
- What is needed, just like for ABC, is stability of indicators, without market shocks;
- several years of data are required for a full analysis;
- it is difficult to work with seasonal goods, and there are quite a lot of them in retail;
- cannot be used on products with a short life cycle.
Combining the results of ABC and XYZ analyzes is a popular management approach product range. Both methods complement each other well. If ABC analysis allows you to evaluate the contribution of each product to the sales structure, then XYZ analysis allows you to evaluate sales jumps and its instability.
By combining and using a cross-approach, we obtain the status or place of each product in the assortment of a product group, store or entire retail chain.
The use of combined analysis provides a number of additional advantages:
- identification of products with stable sales, significant for the turnover of a store or chain, and unprofitable products;
- increasing the share of profitable products without violating the principles of assortment policy;
- determining the reasons affecting the quantity and location of goods stored in the warehouse;
- redistribution of personnel efforts to manage the assortment and its warehouse stocks.
Methods for conducting combined analysis
There are 2 ways to conduct cross-analysis: sequential and parallel.The choice of one of them depends on the purpose and desired results. Let's explain in more detail.
Sequential method assumes that the analysis is first carried out according to one of the types, according to a separate criterion. Next, for each of the resulting categories, analysis is applied according to 2 criteria, or type, etc.
Visually it looks like this.
This approach is used for large data sets. For example, if cross-analysis is carried out across the entire assortment of the chain, across a large product group.
The second aspect is that such an analysis requires significant analytical efforts by its organizer. It is necessary to determine the importance of each criterion for future analysis and build the analysis structure in the right order.
For example, the goal of cross-analysis is to optimize space in a store’s warehouse, in which case the first criterion will be the stability of sales, i.e. XYZ analysis, the second criterion is the number of sales of each product according to ABC, the third is turnover, again according to ABC.
When choosing another goal - say, identifying luxury goods - the first analysis criterion will be Store Turnover, then the Number of Sales and Entry into Receipts. But the stability of product sales using XYZ analysis is not so important here.
Those. sequential analysis can be carried out if the number of products in a product group is large enough, if it is necessary to determine a policy for working with the group, develop a strategy for managing and promoting the necessary products.
Parallel The approach involves constructing a category matrix based on a given number of criteria, analyzing and working with each category in a cell of the matrix.
This is what the matrix for cross analysis of ABC and XYZ looks like. Usually, the analyst, in any case, simplifies it further and determines the general format of work for several categories.
For ABC analysis, the matrix can be built according to several criteria. For example, in the picture below A by turnover + A by number of sales + X by sales stability.
Let’s analyze the results obtained and go through only the key (boundary) categories:
АААХ - for leading products;
АААZ - goods that are important for the network’s turnover, but with unstable sales, which definitely need to be paid attention to;
BBBY - for average products;
CCCZ - for outsider goods.
Category AAHH- 28 products out of 1260.
The sweetest products. They provide the main turnover of the network, so their constant availability is necessary.
If we analyze the products included in this category, these are mainly chewing gum, cookies and popular children's sweets.
As you can see in the picture below, greatest number sales of chewing gum sold at cash registers also have a fairly significant impact on the turnover of the product group.
There are two options for working with the category - creating excess “safety” stock or organizing “just-in-time” delivery, since goods are sold consistently and an accurate sales forecast is possible.
But it is worth remembering that AAX category products are key to the store’s operation, so if delivery fails at any stage, this can lead to significant problems in the store’s operation.
Why, given the high number of sales, significant impact on store turnover and frequent receipts, is sales of goods in this category so difficult to predict?
Visualization of key indicators - turnover and number of sales - showed that Raffaello sweets have the greatest impact on the turnover of the chain and its product group.
Judging by our life experience, they are quite popular. Why are their sales so unstable, the coefficient of variation is 0.73?
Having opened sales of a specific product, we received an answer to the question.
Sales of sweets of this brand simply take off twice a year - on February 14 and on March 8. Hence the instability.
- transfer part of the goods to an ordering system with a constant order amount (volume);
- ensure more frequent deliveries of some goods;
- choose suppliers located close to the store, thereby reducing the amount of inventory;
- increase the frequency of monitoring.
Sales of goods are not stable enough to ensure constant availability, it is necessary to maintain a warehouse stock for insurance.
You can switch to a system with constant time or order quantity.
CCCZ, as the bottom category of the matrix, objectively the most problematic products - 85 entries.
It is important to remember that this may include new products, luxury goods, custom-made goods, etc. Therefore, the category requires a thoughtful analysis of each position, and only then radical action.
The screenshot below shows these products located in the graph area near 0 and having virtually no effect on the turnover of the retail network.
To concentrate the main resources of a business on key customers, ABC XYZ analysis is carried out. This is a study of the customer base in two directions: by volume (ABC) and frequency of purchases (XYZ).
What do the letters mean?ABC XYZ:
Group A – clients c largest volumes procurement
Group B – counterparties with average purchases
Group C – clients with a small volume of purchases
ABC XYZ analysis allows you to understand:
- Who pays you more and more often than others;
- How many target buyers are there in your ;
- Which customers should you focus your efforts on?
The main objective of ABC XYZ research is to show the company’s priority buyers in order to focus the main efforts on attracting and servicing counterparties who are in the AX category.
ABC XYZ analysis: product line research
ABC XYZ analysis of the current customer base is just one approach. It should be used in conjunction with an analysis of the assortment (inventory) according to the same criteria.
Product line research allows you to create a rating of the “significance” of goods/services. Traditionally, the significance of a product is greater, the higher its performance according to 2 criteria: profit and volume of shipments.
Segmentation of products into these groups can be carried out according to other criteria, depending on the objectives of the study.
2. Reduction of assortment. This is a classic study of purchasing volume and profitability. As a result, goods/services found in categories C or X will be abolished. With the exception of “new products” that have not yet shown themselves.
3. Reducing warehouse maintenance costs. Products are ranked according to turnover rates and occupied warehouse space.
ABC XYZ analysis: buyer migration
But just doing ABC XYZ analysis is not enough. Next, it is important to control the migration of customers from category to category. Those. you need to know how many customers you have in categories A, B, C, and how they move between them. And also how they move along the XYZ axis.
How to track migration in the B2B segment
To stimulate migration to category “A”, you need to measure the share in the client and through phone calls do a survey on 3 important questions:
- How much do they now buy the same product as from you in other companies;
- How much do they buy other types of goods from other companies, and not from you;
- What else do they buy from others that they would like to buy from you.
These 3 questions immediately give you a huge opportunity to expand your share of the client. Record all answers and take them into account when conducting an ABC XYZ analysis. Calculate your share of these customers and analyze how you can increase it.
How to track migration in the B2C segment
If you have a B2C audience, then you have consumption standards for a particular product depending on the average salary.
You can collect a database and see how many customers order based on this data. Based on this, calculate your share in the client and plan how much you can add. And in the future encourage them to buy more.
In the B2C segment, it is also necessary to conduct an ABC XYZ analysis and rank those who previously bought better than now. Find out the reason for the decrease in purchases.
ABC XYZ analysis: holding promotions
ABC XYZanalysis: measuring results
For the B2B segment, when conducting an ABC XYZ analysis, you must fill out a file that contains information about sales plans for each counterparty. Individual plans should be made based on previously made calls/meetings/sent proposals. Then you will have a clear picture.
Therefore, here we need to lead permanent job both for the current base, and for the new base, and for those who are in group A. Then you will see completely different dynamics in your business.
One manager can have from 50 to 200 B2B buyers. And even more in the B2C segment.
We looked at the main points of ABC XYZ analysis, what results it gives, and how to work with this data. Conduct ABC XYZ analysis in your company and focus all your resources on attracting and serving AX customers.
Inventory analysis is not limited to the first letters of the Latin alphabet. ABC analysis is followed by XYZ analysis. It is after it is carried out that the final matrix is compiled, the assessment of which allows us to optimally form stock in the warehouse
Managing commodity resources in any company involves daily analysis large quantity information on the history of sales, inventory, deliveries, returns, etc. If you carefully analyze the information for each product, then there is simply not enough working time for this. Therefore, the question is always about which products to analyze daily, and which ones it is enough to check once a week or even a month.
XYZ analysis allows you to answer this and many other questions.
Mathematical tools
For a better understanding of this method of analysis and the results that its application allows us to obtain, it is necessary to recall several formulas from the institute course in statistics.
Firstly, this formula for calculating the standard deviation of a variation series:
The value of the standard deviation allows you to estimate the degree of dispersion of the values of the options relative to the arithmetic mean. The smaller the standard deviation, the closer to the average the values are.
If the standard deviation in the analysis of sales of one product is 15, and that of another product is 30, this means that monthly sales in the first case are closer to the monthly average and they are more stable than in the second. The standard deviation is very widely used in logistics when planning requirements and when calculating safety stocks.
Second the formula is the coefficient of variation:
The coefficient of variation allows you to compare the stability of sales of several products with different sales volumes. A product with average monthly sales of both 200 and 20 thousand units may have a standard deviation of 100. In one case, the significance of monthly fluctuations will be 50%, in another - 0.5%. Obviously, sales of the second product are much more stable and, as a result, more predictable.
Idea of analysis
The main idea of XYZ analysis is to group objects according to the homogeneity of the analyzed parameters, in other words, according to the coefficient of variation.
You can select a product, product group, supplier, etc. as objects of analysis. Then you need to determine the parameter by which the analysis will be carried out. As a rule, the analysis is carried out on product sales or on the shipment of components from the warehouse. The choice of units of measurement in this analysis is not of fundamental importance.
It is very important to correctly determine the frequency of the data that is analyzed. You can conduct an analysis of the daily shipment of goods from the warehouse, but if most of the goods are not shipped every day, and deliveries are made once a quarter, the result will not be sufficiently indicative. Practice shows that the frequency of data should exceed the frequency of deliveries accepted in your company for most of the goods.
Then you need to calculate the coefficient of variation for each product. To do this, it is convenient to use any spreadsheet editor. In MS Excel, in the “statistical functions” section there is function "STDEV" (range of cells), which allows you to calculate the standard deviation over the selected range. The complete formula that must be entered into the cell to calculate the coefficient of variation will look like this:
STDEV (cell range) / AVERAGE (cell range)
An example of determining product groups when conducting XYZ analysis is presented in table 1. Please pay Special attention for the presence of zeros in cells. If there were no sales in one of the periods and there is a zero in the cell, this cell is still taken into account (product 8). If the cell is left empty, the number of periods for which the calculation is made will be automatically reduced (product 6). This is very convenient when analyzing a large number of product items. If the product appeared during the period for which the analysis is being carried out, you can leave the cells empty, and then the calculation will be made only for those periods where there are values.
The next step is to group products according to the coefficient of variation.
- Group X includes products with a coefficient of variation of less than 10%.
- Group Y includes products with a coefficient of variation from 10% to 25%.
- Group Z includes products with a coefficient of variation of more than 25%.
The most common of them is seasonality of sales. The seasons when sales changes occur are known and taken into account in advance when planning the company's work.
Table 1. Conducting an XYZ analysis of product sales data for the first half of the year
| Sales volume, pieces | Average | Standard | Coefficient | XYZ | ||||||
| Product | July | August | 1 September | October | November | December | sales | deviation | variations | |
| per month | ||||||||||
| Product 1 | 90 | 120 | 120 | 180 | 250 | 200 | 160,0 | 55,1 | 34% | Z |
| Product 2 | 150 | 164 | 154 | 152 | 148 | 169 | 156,2 | 7,7 | 5% | X |
| Product 3 | 250 | 222 | 255 | 286 | 262 | 288 | 260,5 | 22,5 | 9% | X |
| Product 4 | 800 | 858 | 774 | 752 | 792 | 761 | 789,5 | 34,8 | 4% | X |
| Product 5 | 100 | 92 | 102 | 101 | 130 | BY | 105,8 | 12,0 | 11% | Y |
| Product 6 | 0 | 272 | 267 | 324 | 262 | 271 | 279,2 | 22,7 | 8% | X |
| Product 7 | 1500 | 1401 | 1721 | 1320 | 1692 | 1604 | 1539,7 | 146,8 | 10% | X |
| Product 8 | 0 | 272 | 267 | 324 | 262 | 271 | 232,7 | 106,1 | 46% | Z |
| Product 9 | 4000 | 4550 | 4753 | 4704 | 4434 | 4766 | 4534,5 | 266,5 | 6% | X |
| Product 10 | 200 | 120 | 90 | 140 | 150 | 160 | 143,3 | 34,0 | 24% | Y |
The seasonal coefficient is equal to the ratio of the calculated seasonal trend in a given month to the average value of the seasonal trend.
Taking into account seasonal fluctuations.
The following steps can be taken to analyze data for products that have significant seasonal variations. The simplest thing is to change the group boundaries. The step is indeed the simplest, but, alas, not the most effective, since seasonal fluctuations are only one of the reasons for instability.
A more correct and effective action would be to isolate the seasonal component from the actual data. All the company’s products must be divided into groups that have similar seasonal sales dynamics. Then, for each group, you need to determine the seasonal trend and calculate the seasonal coefficients for each seasonal trend. These coefficients are determined by dividing the sales value of each month by the average sales value for the entire period (according to the seasonal trend). Then you need to divide the actual sales values by the seasonal coefficient.
As a result, we will receive the sales volume of the product without taking into account seasonal fluctuations. Now you can perform XYZ analysis on the obtained data. From the example given in Table 2, it can be seen that after excluding the seasonal factor from sales of product 1, the coefficient of variation decreased to 12%.
The estimated seasonal trend is the sales forecast value for a given month. If forecasting is not used, then you need to take the average of sales in this month for the three previous years. The seasonal coefficient is equal to the ratio of the calculated seasonal trend in a given month to the average value of the seasonal trend. The non-seasonal sales value is obtained by dividing the actual data for the month by the seasonal coefficient for that month.
Thus, the use of XYZ analysis allows us to divide the entire assortment into groups depending on the stability of sales. Based on the results obtained, it is advisable to carry out work to identify and eliminate the main reasons affecting the stability and predictability of sales. At comprehensive analysis the state of the commodity resource management system, the most productive combination of the results of ABC and XYZ analyzes.
Table 2. Isolation of seasonal components based on data on actual sales of goods:
| Product | Sales volume, pieces | Average | Standard | Coefficient | |||||
| July | August | September | October | November | December | sales | deviation | variations | |
| per month | |||||||||
| Product 1, actual data | 90 | 120 | 120 | 180 | 250 | 200 | 160,0 | 55,1 | 34% |
| Estimated seasonal trend | 100 | 120 | 150 | 200 | 220 | 180 | 161,7 | 42,6 | 26% |
| Seasonal coefficient | 0,62 | 0,74 | 0,93 | 1,24 | 1,36 | 1,11 | 1,0 | 0,3 | 26% |
| Product 1, not seasonally adjusted | 146 | 162 | 129 | 146 | 184 | 180 | 157,6 | 19,5 | 12% |
Combination of ABC and XYZ analyses.
First, an ABC analysis of goods is carried out based on the amount of income received or the amount of goods shipped for the entire accounting period (for example, a year). Then an XYZ analysis of these products is carried out for the entire same period (for example, monthly sales for the year). After this, the results are combined.
| OH | AY | AZ |
| VX | BY | BZ |
| CX | C.Y. | CZ |
- Products of groups A and B provide the main turnover of the company. Therefore, it is necessary to ensure their constant availability. It is a generally accepted practice that excess safety stock is created for goods of group A, and sufficient safety stock for goods of group B. Using XYZ analysis allows you to more accurately configure the inventory management system and thereby reduce the total inventory.
- Products of groups AX and BX distinguished by high turnover and stability. It is necessary to ensure constant availability of goods, but for this there is no need to create excess safety stock. The consumption of goods in this group is stable and well predicted.
- Products of the AY and BY groups with high turnover, they have insufficient stability of consumption, and, as a result, in order to ensure constant availability, it is necessary to increase the safety stock.
- Products of the AZ and BZ groups with high turnover, they are characterized by low predictability of consumption. An attempt to ensure guaranteed availability for all goods of a given group only through excess safety inventory will lead to the fact that the company's average inventory will increase significantly. For products in this group, the ordering system should be revised. Some goods need to be transferred to an ordering system with a constant amount (volume) of the order; for some goods, it is necessary to ensure more frequent deliveries, choose suppliers located close to your warehouse (and thereby reduce the amount of insurance inventory), increase the frequency of control, entrust work with this group of goods to the most experienced manager of the company, etc.
- Products of group C make up up to 80% of the company’s product range. The use of XYZ analysis can greatly reduce the time that a manager spends on managing and monitoring the products of this group.
- By products of the CX group You can use an ordering system with constant frequency and reduce safety inventory.
- By products of the CY group you can switch to a system with a constant amount (volume) of the order, but at the same time create a safety stock based on the financial capabilities of the company.
- To product group CZ all new goods, goods of spontaneous demand, supplied to order, etc. are included. Some of these goods can be painlessly removed from the assortment, and the other part needs to be regularly monitored, since it is from the goods of this group that illiquid or hard-to-sell inventories arise, from which the company incurs losses. It is necessary to remove from the assortment the remains of goods taken on order or no longer produced, that is, goods usually classified as stock.
If you hire a new and inexperienced employee, then by entrusting him with working with AZ group products, you risk incurring losses during the period when he is gaining the necessary experience. If you entrust him with goods from the CX group, then, after working for a year, he will learn to press three buttons on a computer and send orders to the supplier. If you entrust him with the goods of the CZ group, then he will quickly gain experience, and the company will not suffer much from his experiments, and you do not need to control his every step.
Advantages of the combined method.
So, using a combined ABC and XYZ analysis will allow you to:
- increase the efficiency of the commodity resource management system;
- increase the share of highly profitable goods without violating the principles of assortment policy;
- identify key products and reasons influencing the number of goods stored in the warehouse;
- redistribute staff efforts depending on qualifications and experience.
And this is not a complete list of the advantages that are realized through the use of the described combined method.
To combine the results obtained, we build a combined matrix. The simplest combination option is to sort both files with analysis results by the index field, then copy the column with groups from one file to another. It is better from XYZ to ABC, since the actual value of the share of the object's turnover has more practical meaning than the coefficient of variation.
As a result of this combination of two indicators: the degree of influence on the final result (ABC) and the stability/predictability of this result (XYZ), we obtain nine groups of objects of analysis (Fig. 4.19).
Rice. 4.19. Combined matrix
In table 4.21 describes the products and individual positions of the assortment policy for different cells of the combined matrix.
Products groups A and B provide the main turnover of the company. Therefore, it is necessary that they are constantly available. It is a generally accepted practice when, for goods in a group A excess safety stock is created, and for group goods IN– sufficient. Usage XYZ- analysis allows you to develop a more accurate assortment policy and thereby reduce the total inventory. Products groups OH And VX characterized by high turnover and stability. It is necessary to ensure constant availability of goods, but for this there is no need to create excess safety stock. The consumption of goods in this group is stable and well predicted. Products groups AY And BY with high turnover, they have insufficient sales stability, and as a result, in order to ensure their constant availability, it is necessary to increase the safety stock.
Table 4.21. Tabular presentation of the results of ABC and XYZ analysis
|
Products groups OH And VX characterized by high turnover and stability. It is necessary to ensure their constant availability, but for this there is no need to create excess safety stock. The consumption of goods in these groups is stable and well forecasted |
Products groups AY And BY with high turnover they have insufficient stability. To ensure constant availability of goods, you need to increase its safety stock |
Products groups AZ And BZ with high turnover, they are characterized by low predictability of sales volume. An attempt to ensure the guaranteed availability of all goods of these groups only through excess safety inventory will lead to the fact that the company's average inventory will increase significantly. The ordering system for these groups should be revised |
|
|
For group products CX you can use an ordering system with constant frequency and reduce safety stock |
For goods in the SU group, you can use an ordering system with a constant amount (volume) of the order, but at the same time create a safety stock based on the financial capabilities of the company |
To product group CZ All new goods, goods of variable demand, supplied on order and (or) to study the market reaction are included. Some of them can be painlessly removed from the assortment, while the other part needs to be regularly monitored, since it is from the products of this group that illiquid or hard-to-sell inventories arise, due to which the company incurs losses |
Products groups AZ And BZ with high turnover, they are characterized by low sales predictability. An attempt to ensure guaranteed availability for all goods of a given group only through excess safety inventory will lead to the fact that the company's average inventory will increase significantly. The ordering system for products in this group should be reviewed. Some goods need to be transferred to an ordering system with a constant order amount (volume). For some goods, it is necessary to ensure more frequent deliveries, select suppliers located close to the warehouse (thereby reducing the amount of safety inventory), increase the frequency of control, entrust work with this group of goods to the most experienced manager of the company, etc. .
Group C products make up up to 80% of the company's assortment. The use of XYZ analysis can significantly reduce the time that a manager spends on managing and monitoring the products of this group.
By product group CX You can use an ordering system with constant frequency and reduce safety inventory.
For products of the SU group, you can switch to a system with a constant amount (volume) of the order, but at the same time create a safety stock based on the capabilities available to the company.
The CZ product group includes all new products, products of spontaneous demand, supplied to order, etc. Some of these goods can be painlessly removed from the assortment, while the other part needs to be regularly monitored, since it is from the goods of this group that illiquid or hard-to-sell inventories arise, from which the company incurs losses. It is necessary to remove from the assortment the remains of goods taken on order or no longer produced.
In table Figure 4.22 presents an example of combining the results of ABC and XYZ analysis.
The conjoint analysis matrix can also be used to rationalize the use of employee labor. Products category OH should be serviced by the most experienced and qualified employees, and a group of products falling into the CZ category can be entrusted to beginners. It will be easy for them to work with a category where orders occur less frequently, tolerances for deviations are higher, and only the amount spent on a given product item for a certain period is strictly limited. If you entrust work with group products AZ a new and inexperienced employee runs the risk of incurring losses during the period when he is gaining the necessary experience. If you entrust him with the goods of the group CX, then, after working for a year, he will learn to press keys on a computer and send applications to the supplier. If you entrust him with the goods of the group CZ, then he will quickly gain experience, and the company will not suffer much from his experiments, but every step of his will need to be monitored.
So, using a combined ABC and XYZ analysis will allow you to:
- increase the efficiency of the commodity resource management system;
- increase the share of highly profitable goods without violating the principles of assortment policy;
- identify key products and reasons influencing the number of goods stored in the warehouse;
- redistribute staff efforts depending on their qualifications and experience. The advantages of the considered methods of analysis include the following.
- 1. ABC analysis allows you to simply and clearly study a large set of economic data. This method of analysis has received great development due to its versatility and efficiency. It can be used in both wholesale and retail activities trading enterprises, and in the activities of organizations that produce goods (services).
- 2. The results of ABC analysis make it possible to further rationalize assortment management activities. It is simpler and easier to control and maintain an assortment of 20 positions than 100. Moreover, when these 20 positions provide 80% of the profit. As a result, it is only necessary to conduct, say, daily assortment and quantitative control of the availability of goods belonging to the group A. At the same time, not only profitable products are identified, but also products that are in high demand, often cheap.
- 3. ABC analysis allows you to perform a fairly quick, but at the same time effective assessment state of affairs in the warehouse, and rationally solve inventory management issues.
- 4. Regular comparison of the new and old ABC index allows you to see how many positions (up or down the classification) the product has moved. The result of this classification is the ability to see which products are increasingly popular (are in the growth stage according to the stages of the product life cycle), and which are in the decline phase.
Table 4.22. Combining the results of ABC and XYZ analysis based on the results of the retail network for the first quarter of 2013.
|
Supplier name |
Sales volume for January, units of goods |
Sales volume for February, units of goods |
Sales volume for March, units of goods |
Total for the first quarter, units of goods |
Share in turnover, % |
Share in turnover with cumulative total, % |
ABC group |
XYZ-group |
Combination |
|
Total by supplier |
|||||||||
|
Supplier 1 |
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|
Supplier 2 |
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|
Supplier 3 |
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|
Supplier 4 |
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|
Supplier 5 |
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Supplier 6 |
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|
Supplier 7 |
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|
Supplier 8 |
Note. This abbreviated example is based on the work of .
5. The use of ABC analysis helps solve the problems of segmenting consumers, studying demand, choosing effective marketing tools, and rational use of employee labor.
At the same time, the following disadvantages of these methods can be noted.
- 1. Possibility of getting new products into group C. Difficulties arise in the case of a dynamically changing situation, for example, when introducing a new product to the market (the analogues of which the company has not yet traded) or a one-time acquisition of some product items. When the number of sales of a new product increases weekly, XYZ analysis will not yield anything; the product will inevitably fall into the “unstable” group Z.
- 2. XYZ analysis is meaningless and for enterprises working on order, they simply do not need such forecasts.
- 3. In market segments in which the spread of daily sales during the month can be 50% or more, the use of XYZ analysis may be useless, since all products will fall into category Z.
- 4. Both ABC and XYZ analysis are focused on their use in relatively stable environmental conditions. Crisis phenomena, significant changes exchange rates, changes in the competitive situation, etc. sharply reduce the predictive value of the results obtained. This is especially true for XYZ analysis, since even in a stable situation, making predictive conclusions based on data for three to five time periods must be done with great caution. It should also be recognized that the actual value of the share of turnover of an object has more practical meaning than the coefficient of variation.
Despite the noted disadvantages, ABC and XYZ analysis are modern instrument marketing, the combined use of which with other methods of analysis helps to solve issues of assortment and pricing policy, selection of market segments and sales channels, inventory management, increasing the efficiency of using marketing communications tools.
Task. In order to strengthen its position in the market, the company's management decided to expand its product range. The company does not have the free financial resources necessary to finance additional commodity resources. The logistics service was tasked with strengthening inventory control in order to reduce the total volume Money, dead in stocks. It is necessary to analyze the assortment by methods ABC And XYZ, resulting in the distribution of assortment items into groups and the formulation of appropriate recommendations for inventory management.
The company's trading assortment, average inventories for the year, as well as sales volumes for individual quarters are presented in the table.
| Position number | Sales for the quarter, rub. | ||||
|---|---|---|---|---|---|
| I quarter | II quarter | III quarter | IV quarter | ||
| 1 | 4900 | 4000 | 3700 | 3500 | 4100 |
| 2 | 150 | 240 | 300 | 340 | 400 |
| 3 | 200 | 500 | 600 | 400 | 900 |
| 4 | 1900 | 3300 | 1000 | 1500 | 2000 |
| 5 | 150 | 50 | 70 | 180 | 20 |
| 6 | 450 | 450 | 490 | 460 | 480 |
| 7 | 900 | 1400 | 1040 | 1200 | 1300 |
| 8 | 2500 | 400 | 1600 | 2000 | 2900 |
| 9 | 3800 | 3600 | 3300 | 4000 | 3400 |
| 10 | 690 | 700 | 1000 | 1100 | 800 |
Solution.
1. Let's carry out ABC stock analysis. As a classification criterion, we choose the indicator Average reserves for the year. The methodology for conducting ABC analysis using MS Excel can be viewed or read in more detail using an example.
As a result, group A of product positions 1, 9 and 8 was identified, which constitute about 80% of the company’s total inventories. Group B includes product items 4 and 7, the remaining items fall into group C.
| Item no. | Average stock for the year by position, rub. | Position share, % | Increasing share, % | Group |
|---|---|---|---|---|
| Total: | 15640 | 100,00% | ||
| 1 | 4900 | 31,33% | 31,33% | A |
| 9 | 3800 | 24,30% | 55,63% | A |
| 8 | 2500 | 15,98% | 71,61% | A |
| 4 | 1900 | 12,15% | 83,76% | B |
| 7 | 900 | 5,75% | 89,51% | B |
| 10 | 690 | 4,41% | 93,93% | C |
| 6 | 450 | 2,88% | 96,80% | C |
| 3 | 200 | 1,28% | 98,08% | C |
| 5 | 150 | 0,96% | 99,04% | C |
| 2 | 150 | 0,96% | 100,00% | C |
For greater clarity, we built a Pareto chart in MS Excel.
Conclusion: first of all, it is necessary to control the stocks of goods included in group A. Now you need to figure out whether such a quantity of stored stocks is justified. To do this, we will conduct another ABC analysis.
2. Let's choose another criterion for classifying inventory - Sales volume for the year. As a result of the ABC analysis, product positions 1, 9, 4 and 8 fell into main group A. Group B included positions 7 and 10, the rest were in group C. Note that all product positions from group A according to the previous analysis this time also fell into group A. This once again indicates the need to control the level of these reserves.
| Item no. | Sales for the year, rub. | Position share, % | Increasing share, % | Group |
|---|---|---|---|---|
| Total: | 58720,0 | 100,00% | ||
| 1 | 15300 | 26,06% | 26,06% | A |
| 9 | 14300 | 24,35% | 50,41% | A |
| 4 | 7800 | 13,28% | 63,69% | A |
| 8 | 6900 | 11,75% | 75,44% | A |
| 7 | 4940 | 8,41% | 83,86% | B |
| 10 | 3600 | 6,13% | 89,99% | B |
| 3 | 2400 | 4,09% | 94,07% | C |
| 6 | 1880 | 3,20% | 97,28% | C |
| 2 | 1280 | 2,18% | 99,46% | C |
| 5 | 320 | 0,54% | 100,00% | C |
The greatest revenue comes from product items in group A. Therefore, the logistics service needs to ensure the constant availability of these goods. It is permissible to create an excess safety stock for these goods. The results of XYZ analysis will allow you to more accurately configure the inventory management system.
3. We will carry out XYZ analysis of product items. Unlike ABC analysis, XYZ implies the use of a single criterion for classifying reserves - coefficient of variation. The coefficient of variation is calculated using the formula:
v = (S / R avg) * 100%,
Where S– mean square (standard) deviation of sales volumes for the period;
R avg– average sales volume for the same period.
How less value coefficient of variation, the more stable the sales of goods. In accordance with the value of the coefficient of variation, all product items are divided into three groups: X, Y and Z. Group X includes goods with a coefficient of variation of less than 10%. Group Y includes products with a coefficient of variation from 10% to 25%. Group Z includes products with a coefficient of variation of more than 25%.
The results of the XYZ analysis are presented in the table below.
| Item no. | Sales for the quarter, rub. | Average sales per quarter, rub. | Implementation standard deviation | Coef. variations, % | Group | |||
|---|---|---|---|---|---|---|---|---|
| I | II | III | IV | |||||
| 1 | 4000 | 3700 | 3500 | 4100 | 3825,0 | 238,48 | 6% | X |
| 2 | 240 | 300 | 340 | 400 | 320,0 | 58,31 | 18% | Y |
| 3 | 500 | 600 | 400 | 900 | 600,0 | 187,08 | 31% | Z |
| 4 | 3300 | 1000 | 1500 | 2000 | 1950,0 | 855,86 | 44% | Z |
| 5 | 50 | 70 | 180 | 20 | 80,0 | 60,42 | 76% | Z |
| 6 | 450 | 490 | 460 | 480 | 470,0 | 15,81 | 3% | X |
| 7 | 1400 | 1040 | 1200 | 1300 | 1235,0 | 132,95 | 11% | Y |
| 8 | 400 | 1600 | 2000 | 2900 | 1725,0 | 898,26 | 52% | Z |
| 9 | 3600 | 3300 | 4000 | 3400 | 3575,0 | 268,10 | 7% | X |
| 10 | 700 | 1000 | 1100 | 800 | 900,0 | 158,11 | 18% | Y |
Group X included product items 1, 6 and 9. Group Y included 2, 7 and 10. The rest fell into group Z - 3, 4, 5 and 8.
4. Let's combine the results of ABC and XYZ analysis. In this case, in the general case, nine groups of goods are formed. In our case, the following product matrix was obtained.
| A | B | C | |
|---|---|---|---|
| X | 1, 9 | 6 | |
| Y | 7, 10 | 2 | |
| Z | 4, 8 | 3, 5 |
Goods AH groups(1 and 9) are characterized by high sales volume and stability. It is necessary to ensure constant availability of goods, but there is no need to create excess safety stock, since the demand for goods in this group is well predicted.
Goods BY groups(7 and 10) with fairly high sales have insufficient stability. It is believed that products of group Y have a certain trend in sales volumes - decline or growth. To ensure their constant availability, it is necessary to increase the safety stock.
Goods AZ groups(8 and 4) are characterized by high sales and low demand predictability.
To ensure the constant availability of goods of this group, in some cases redundant safety stocks, but this may lead to an increase in the company’s total inventory. Therefore, here we can recommend switching to more private deliveries, working with more reliable suppliers, and more carefully organizing control over the consumption of these goods.
For goods CX group(6) safety stock can be reduced to a minimum level and an inventory management system can be used with a constant frequency between orders.
By product CY groups(2) you can switch to a system with a constant order volume, but at the same time form a safety stock based on the financial resources available to the company.
To the group CZ goods positions 3 and 5 were included. If possible, it is better to remove these products from the assortment. In any case, they need to be regularly monitored, since it is from these goods that illiquid assets arise, from which the company incurs losses.