# ABC-XYZ-analysis

ABC analysis is a method that allows classifying a company's resources based on their importance and profitability. It is based on the Pareto principle.

XYZ analysis is a method of classifying a company's resources depending on:

- The stability of consumption and the accuracy of its future forecasting
- The resilience or volatility of demand
- The susceptibility to seasonal fluctuations in demand
- The random nature of demand

Such classification can simplify assortment planning, as well as the optimization of logistics and storage, which can contribute to the reduction of product overstocks and minimize expenses associated with excessive stocks. Moreover, this analysis is quite universal and can be applied not only for product segmentation but also, for example, for services, customers, or partners.

## Algorithm Description

### 1. Import

**a) Import Data**Table *Goods*

Name | Caption |
---|---|

Goods | Goods |

Month | Month |

Count | Count |

Sum | Sum |

### 2. Preparation

**a) Calculation of Sum, average, standard deviation.**The Grouping component calculates the following indicators for each product:

- total revenue from sales
- average quantity of goods sold
- standard deviation from the mean

The settings in the ** Sum, Average, Standart deviation** node are:

- field
*Goods*- Group - field
*Sum*-*Indicators*, aggregation option*Sum* - field
*Count*-*Indicators*, aggregation options*Average*and*Standard deviation*.

**b) Sorting**The list of goods is sorted in descending order by total revenue. This is necessary so that the best-selling product is in the first place for the correct subsequent assignment of the category.

### 3. ABC XYZ Analysis

**a) ABC**The ABC node's input port of variables has the variables `A`

and `C`

set with values of 50.00 and 80.00. Each variable has the designation — *Used*.

These variables are subsequently used to assign a category to a product.

With the Calculator in the ABC node, 3 expressions are defined that are executed sequentially one after another:

Name | Caption | Description |
---|---|---|

part | Percentage of the amount | Calculation of the share (in %) of each product's revenue relative to total profit. |

Cum_amount | Cumulative amount | The next percentage value in line is summed up with the previous percentage value. |

abc | ABC | Depending on the cumulative total, products are assigned to category A, B, or C, for example, if , then A. The values that determine which category is assigned are set as input variables in the corresponding port of the node. |

**b) XYZ**The XYZ node's input port of variables has the variables `X`

and `Z`

set with values of 10.00 and 25.00. Each variable has the designation — *Used*.

In ** XYZ** node 2 expression:

Name | Capture | Description |
---|---|---|

variation | Variation | Calculation of the coefficient of variation based on the average quantity of sales and the standard deviation from the mean. |

xyz | XYZ | Depending on the coefficient of variation, products are assigned to category X, Y, or Z. The values that determine which category is assigned are also set as input variables. |

**c) ABC + XYZ**The resulting sets from the previous steps are merged using the Join node. An inner join is used for the merge based on the Goods field.

## Interpretation

**Goods in groups AX/BX**are characterized by high turnover and stability. They can be kept consistently available, but there's no need to create excessive safety stock for this. The consumption of goods in these groups is stable and predictable.**Goods in groups AY/BY**, despite high turnover, have insufficient stability of consumption, and as a result, to ensure constant availability, it is necessary to increase safety stock.**Goods in groups AZ/BZ**, despite high turnover, are characterized by low predictability of consumption. Attempting to guarantee the availability of all goods in these groups solely by means of excessive stock will result in a significant increase in the company's average inventory. The ordering system for these groups should be reviewed.For

**goods in the CX group**, it's possible to use an ordering system with a constant frequency and reduce the safety stock.For

**goods in the CY group**, it's possible to use an order system with a constant amount (volume) of the order, but at the same time form a safety stock based on existing financial capabilities.The

**CZ group**includes all new goods, goods with erratic demand, supplied to order, etc. Some of them can be painlessly phased out of the assortment, while others need to be regularly monitored, as it is from the goods of this group that illiquid or difficult-to-realize stocks arise, causing the company to incur losses.

Thus, by adhering to a certain strategy in forming an assortment, it's possible to reduce overhead costs through logistics optimization and inventory management.

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