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Explain : XYZ Analysis

The XYZ analysis is a way to classify inventory items according to variability of their demand.

X – Very little variation: X items are characterised by steady turnover over time. Future demand can be reliably forecast.

Y – Some variation: Although demand for Y items is not steady, variability in demand can be predicted to an extent. This is usually because demand fluctuations are caused by known factors, such as seasonality, product lifecycles, competitor action or economic factors. It's more difficult to forecast demand accurately.

Z – The most variation: Demand for Z items can fluctuate strongly or occur sporadically. There is no trend or predictable causal factors, making reliable demand forecasting impossible.