ABC analysis ranks items by value contribution (A = highest, C = lowest); XYZ analysis ranks them by demand predictability (X = stable, Z = erratic). Combined, they tell you which items deserve the tightest stock control and which don't.
Not every item in your inventory deserves the same amount of attention. ABC/XYZ analysis is a simple way to sort out which ones do.
ABC: ranked by value
ABC analysis groups items by how much they contribute to your total sales or stock value, typically following something close to the 80/20 rule.
- A items: a small number of SKUs that make up the bulk of your value (often ~70-80%)
- B items: a moderate group contributing a moderate share
- C items: a large number of SKUs contributing relatively little value each
XYZ: ranked by predictability
XYZ analysis is a second, independent cut — this time by how predictable each item's demand is.
- X items: steady, predictable demand
- Y items: some variability, seasonal or trend-driven
- Z items: erratic, hard-to-predict demand
Combining the two
An AX item — high value, predictable demand — is worth tight stock control and a reliable reorder point, since running out is costly and demand is easy to forecast. A CZ item — low value, erratic demand — usually isn't worth the same effort; a looser buffer stock is often good enough. The categories in between (AY, BX, CY, etc.) fall somewhere along that spectrum.
What to actually do with it
Once items are classified, the practical output is different stock policies per group: tighter reorder points and more frequent review for AX/AY items, and a simpler "reorder when low" rule for C-anything items. Doing this analysis on paper for a large catalogue is tedious; it's really a byproduct of having clean sales and stock data to run the numbers against in the first place.
StashBill's inventory intelligence runs this classification automatically from your sales history, instead of a manual spreadsheet exercise.Frequently asked
How often should I redo ABC/XYZ analysis?
Quarterly is a reasonable default for most small businesses — more often if your catalogue or demand patterns change quickly.
Do I need special software to do this?
No, it can be done in a spreadsheet from sales data, but it's a manual, recurring exercise unless your inventory system tracks the underlying sales history for you.