ABC-XYZ segmentation: plan every item the way it deserves

Not every item deserves the same attention. ABC-XYZ segmentation is a simple, proven way to decide which items need tight control, which can run on simple rules, and where the real risk sits.

ABC: how much the item matters

ABC analysis ranks items by their contribution, usually revenue, but it can also be volume, profitability or margin. A typical split is:

• A items: the small group that drives most of the value.
• B items: the middle group.
• C items: the long tail that contributes little individually.

The right basis depends on your business. A distributor focused on cash may rank by revenue, while a manufacturer may care more about margin. The choice should be yours, not fixed by the software.

XYZ: how predictable demand is

XYZ analysis classifies items by demand variability, often measured with the coefficient of variation:

• X items: stable, predictable demand.
• Y items: moderate variation, often seasonal or trend-driven.
• Z items: erratic or intermittent demand that is hard to forecast.

Putting the two together

Combining both gives nine segments, from AX (valuable and predictable) to CZ (low value and erratic). Each segment can then get its own policy:

• AX, AY: high service levels, frequent review, careful forecasting and close approval.
• AZ: high value but erratic, so they need safety stock and active exception management.
• CX, CY: simple, automated replenishment rules.
• CZ: question whether to stock them at all, or move them to order-on-demand.

From segmentation to daily decisions

Segmentation only pays off when it drives the plan. In OPTIAI, the ABC basis is chosen by each client, and every segment carries its own service level, review period, escalation rules, planning treatment and approval matrix. Forecast models, safety stock and review queues all follow from it.