Analysis of inventories on the example of selected enterprises (pt.2) – ABC/XYZ analysis

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Analysis of inventories on the example of selected enterprises (pt.2) – ABC/XYZ analysis

As all investigated companies kept excessive stocks, the next step of the investigation was to identify the product groups that had the greatest impact on the low level of turnover. For this purpose, the ABC/XYZ analysis method was used. The criterion of division into XYZ categories was consumption characteristics. Products with the lowest sales deviations, for which it can be assumed that sales have a normal or close to normal distribution, were qualified to the X group. Products for which the standard deviation of sales was greater than or equal to the average sales were classified into group Z. They were therefore products with right-hand asymmetry, including an exponential distribution, and distribution close to that of exponential. Products with intermediate deviations between X and Z groups were qualified to Y group.

In order to deepen the analysis, the coverage factor was subsequently examined within the groups with the largest number or level of stocks. Products assigned to individual products in the ABC/XYZ analysis were then divided into subgroups with the following ranges of the coverage factor:

  • 0-15 days,
  • over 15 and no more than 30 days,
  • over 30 and no more than 45 days,
  • over 45 and no more than 60 days,
  • over 60 days,
  • no consumption during the period considered.

Figures 1 and 2 present the results of ABC/XYZ analysis for a papermaking company, expressed as the number of indexes and the value of inventories in particular groups.

ABC/XYZ analysis results expressed by the number of indexes in particular groups for a papermaking company.
Figure 1. ABC/XYZ analysis results expressed by the number of indexes in particular groups for a papermaking company.

ABC/XYZ analysis results expressed as inventory value for individual groups, for a papermaking company.
Figure 2. ABC/XYZ analysis results expressed as inventory value for individual groups, for a papermaking company.

The largest number of the company’s products have been classified as the CZ group, which is characterized by the lowest value and the lowest regularity of sales. The results of the analysis expressed in the value of inventories indicate that the largest inventories are maintained for products from the AX and AY groups, i.e. for products characterized by stable demand and having a large share in the sales value. Products from BZ and CZ groups, which had a relatively small share in sales, also showed high inventory values. In order to deepen the analysis, for the groups with the highest stock levels, the days on hand were subsequently examined. The results of the study are presented in Figure 3.

Results of the coverage factor test for the groups with the highest inventory value for a papermaking company. ABC/XYZ analysis
Figure 3. Results of the coverage factor test for the groups with the highest inventory value for a papermaking company.

The analysis showed that the stock levels for the AX and AY groups were justified because the products in these groups had a high turnover. However, it was not justified to maintain a high level of stocks for BZ and CZ. BZ products were mostly characterized by the days on hand factor exceeding 60 days. For CZ products with an exponential distribution or close to an exponential distribution of sales, stocks were built up incorrectly, with the result that in most cases no release of these products took place during the analysis period. The results of the analysis lead to the conclusion that in the investigated company logistics perform well on regular consumption products with normal or close to normal sales distributions. The biggest problem was the management of stocks of products with high variability in sales, and in particular products with an exponential or close to exponential distribution.

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Author of the article: Radosław Śliwka

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