Description of the Framework - What is ABC - XYZ Analysis? 

 

You'll find the ABC-XYZ Analysis on the Inventory Product Details dashboard in our Premium: Assortment Module. This framework is used often in retail environments to distinguish products that are bringing in the highest revenue/percent of sales (total revenue) in combination with the products that sell frequently (units sold). 
 

ABC-XYZ analysis is a two-dimensional framework for assigning a grade (e.g., relative value) to individual products. In Retailer Premium's Assortment module, the ABC-XYZ framework is applied to SKUs on a category level, which we will cover in detail below.
 

The ABC dimension rates products based on their relative contribution to sales within a store's category. For example, a product in a category's top 70% of sales would have high sales value (i.e., an "A" grade), a product in a category's 70% - 90% of sales would have medium sales value (i.e., a "B" grade), and a product in the bottom 10% of a category's sales, or 90% - 100%, would have low sales value (i.e., a "C" grade).
 

While ABC grading is a powerful tool for understanding a product's value, it is best used not in isolation. In other words, retailers wouldn't want to focus their inventory planning solely on a product's sales value. If we took ounces of Flower as an example, we know these products have high item prices and therefore would show much larger sales volumes than say an eighth product, but ounces are purchased very infrequently compared to eighths. We address this by adding the second dimension, XYZ, into a product's grading.
 

The XYZ dimension rates a product based on the frequency in which it shows up in the customer's basket, which is measured by basket penetration (e.g., the % of a given category's baskets containing the product). For example, a product with a basket penetration rate in the top 30% of the category would have high basket penetration (i.e., an "X" grade), a product in the 30th - 70th percentile would have medium basket penetration (i.e., a "Y" grade), and a product in the 70th to 100th percentile would have low basket penetration (i.e., a "Z" grade). When we combine these two dimensions, we arrive at the matrix shown in the image below. This matrix provides retailers with the ability to easily understand how important a product is to customers as well as their store's revenue.
 

Grade Details

AX:
The AX inventory grade represents products that have high sales value and high basket penetration.

Recommendations: Products with this grade are high performers; consider stocking more units of the products or increasing their shelf space allocation.

AY:
The AY inventory grade represents products that have high sales value and medium basket.

Recommendations: Products with this grade are high performers; consider stocking more units of the products or increasing their shelf space allocation.

AZ:
The AZ inventory grade represents products that have high sales value and low basket penetration.

Recommendations: Products with this grade are average performers; no urgent actions are needed for these products.

BX:
The BX inventory grade represents products that have medium sales value and high basket penetration.

Recommendations: Products with this grade are high performers; consider stocking more units of the products or increasing their shelf space allocation.

BY:
The BY inventory grade represents products that have medium sales value and medium basket penetration.

Recommendations: Products with this grade are average performers; no urgent actions are needed for these products.

BZ:
The BZ inventory grade represents products that have medium sales value and low basket penetration.

Recommendations: Products with this grade are poor performers; monitor the performance of these SKUs and, if necessary, remove them from the inventory assortment.

CX:
The CX inventory grade represents products that have low sales value and high basket penetration.

Recommendations: Products with this grade are average performers; no urgent actions are needed for these products.

CY:
The CY inventory grade represents products that have low sales value and medium basket penetration.

Recommendations: Products with this grade are poor performers; monitor the performance of these SKUs and, if necessary, remove them from the inventory assortment.

CZ:
The CZ inventory grade represents products that have low sales value and low basket penetration.

Recommendations: Products with this grade are poor performers; monitor the performance of these SKUs and, if necessary, remove them from the inventory assortment.

No Sales Last 60 Days:
Inventory grades were not assigned to these products as they had no sales in the last 60 days.

Recommendations: Remove from inventory assortment.