Principles of ABC and XYZ analysis

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Planning business processes today is impossible to imagine without preliminary study of market features and product classification. A competent approach is required to make decisions in the field of marketing and logistics.

ABCXYZ analysis is an example of a popular fronk oil email list method for optimizing these processes. It is possible to apply this tool without involving a team of experts.

The essence of ABC analysis
The ABC component is based on the Pareto principle, which is the idea that 80% of the business results come from 20% of the efforts. Having identified these 20% as a result of the analysis, it is important to focus on them.

The purpose of the ABC method research is to classify processes, goods and services that are similar at first glance. Among these objects, a key group is identified, work with which brings the greatest result to the business. With the help of this tool, you can adjust the assortment, improve work with clients and increase sales.

Based on the results of ABC analysis, 3 groups of objects are distinguished:

A - 20% of the most valuable resources (this group provides 80% of the results);

B - 30% of resources of average value, their share in the overall result is 15%;

C - 50% of resources that produce only 5% of results.

ABC analysis allows you to rank resources based on their value to the business.

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The essence of XYZ analysis
Unlike the ABC component, the XYZ task is to determine the stability of demand for a group of goods or services. This method is used to determine the effectiveness of sales and the stability of customer requests. Grouping of business objects occurs depending on the uniformity and seasonality of sales distribution.

ABC analysis identifies the most profitable product categories, and the XYZ component adds information about the stability of demand for them.

In case of selling services, clients are ranked:

X is a category of clients who place orders stably and regularly (the sales forecast for this group is quite accurate).

Y is a category of customers who place orders irregularly.

Z is the category of customers who made a single order.

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Purpose of the research
ABC and XYZ analysis methods are applicable for optimizing the following business components:

product range (analysis of the profitability of positions);

target customer categories (analysis of the database by order volume);

suppliers (analysis of volumes of supplied products);

debtors (analysis of amounts and dynamics of debts).

By conducting an ABC analysis, you will identify the clients who have paid you more than others. And the XYZ analysis will show how stable their orders are.

The most effective method is to use ABC and XYZ analyses in combination. Thanks to this approach, you will not only identify the most profitable product groups, but also identify those that are characterized by stable demand.

If we talk about clients, the following groups are distinguished:

a category of regular customers with high profitability - it is for them that loyalty programs are developed and relationship marketing is used;

clients who do not regularly place expensive orders - this category needs to be worked with and interest in the product range needs to be maintained;

a group of those who make rare but expensive orders - it is important to analyze the needs of this category and expand the range in accordance with them.

The combination of actions based on the results of the analysis will in any case increase business income.