# 11.7.2 Scenario: The ABC-XYZ Analysis and its Use in Materials Management

### Intended learning outcomes: Explain the combined ABC-XYZ classification. Describe its use in materials management. Identify the appropriateness of Kanban control as the result of an ABC-XYZ analysis.

This scenario refers to Subsections 11.2.2 and 11.2.3.

The ABC-XYZ analysis consists of a combined ABC-XYZ classification. It allows decision making as to the appropriate method of materials management for individual items.

Mark the areas (items) in the matrix in Figure 11.7.2.1 for which Kanban control would be appropriate. Explain the reasoning behind your answer.

Fig. 11.7.2.1       The ABC-XYZ analysis — a combined ABC-XYZ classification.

Solution:

The prerequisite for the Kanban technique is continuous demand along the entire value chain. X items are particularly suitable for production in a Kanban system. For the Y group, A items should not be controlled by Kanban, for their consumption value is high, and fluctuating demand leads to lower stock-inventory turnover and thus longer storage time. For the same reason, Kanban control is as a rule not appropriate for Z items, whereby an exception can be made for C items, as carrying costs for C items may be lower than the costs of a more expensive control technique.

## Course section 11.7: Subsections and their intended learning outcomes

• ##### 11.7.1 Exercise: ABC Category and ABC Classification

Intended learning outcomes: Determine meaningful ABC categories of some items and perform the ABC classification.

• ##### 11.7.2 Scenario: The ABC-XYZ Analysis and its Use in Materials Management

Intended learning outcomes: Explain the combined ABC-XYZ classification. Describe its use in materials management. Identify the appropriateness of Kanban control as the result of an ABC-XYZ analysis.

• ##### 11.7.3 Exercise: Safety Stock Variation versus Demand Variation

Intended learning outcomes: Find out whether the safety stock level increases with increasing demand.

• ##### 11.7.4 Exercise: Determining Batch Size Depending on Stockout Costs

Intended learning outcomes: Determine the batch size in dependence of carrying costs and stockout costs, average annual consumption, and the standard deviation of demand during lead time.

• ##### 11.7.5 Scenario: Effectiveness of the Order Point Technique

Intended learning outcomes: Explore the changing shape of the inventory curve for continuous and less continuous demand.

• ##### 11.7 Scenarios and Exercises

Intended learning outcomes: Calculate examples for the ABC Classification. Disclose the ABC-XYZ analysis in materials management. Differentiate between safety stock variation and demand variation. Determine batch size depending on stockout costs. Assess the effectiveness of the order point technique.