UNIVERSITÄT

DUISBURG
ESSEN
Campus Duisburg

Fakultät für Ingenieurwissenschaften

Abteilung Maschinenbau
Institut für Produkt Engineering
Transportsysteme und -logistik
Keetmanstr. 3-9
47058 Duisburg

Telefon: 0203 379-2785

Telefax: 0203 379-3048
Prof. Dr.-Ing. Bernd Noche
eMail: bernd.noche@uni-due.de

ABC-/XYZ Analysis
Introduction

tul Quelle: Powerpoint-Folien: Uta Horstmann

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A short definition of ABC-Analysis

The ABC-Analysis represents a simple method

of material classification in respect of value and
quantity. (G. Wöhe)

Expressed in a more general way it is a process in order to identfy

important kinds of customers, suppliers or articles.
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The Pareto principle

The so called Pareto principle indicates that for many phenomenons the
following is valid:
80 % of effects are reached by 20 % of causes.

The principle traces back to Vilfredo Pareto (Italian economist) who, related to
Italy, had noticed that 80 % of property belonged to 20 % of the Italian
population.

Vilfredo Federico Damaso

Pareto
1848 - 1923
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However, the rule often is misunderstood:

It seems that 80 % + 20 % = 100 %.
But it can also be valid that:
80 % of effects are traced back to 10 % of causes.

The principle can also be applied recursively, and not only used for 20% of the
reasons :

e.g. 64-4 Rule: e. g. (80 – 16) %  (20 – 16)%

96-36 Rule: e. g. (80 + 16) %  (20 + 16)%
64-4 Rule: e. g. from (80•80/100)% - (20•20/100)%
51,2-0,8 Rule: e. g. from (80•80•80/10000)% - (20•20•20/10000)%

Source: Wikipedia
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ABC classification
Cumulated
Value percentage
or 100
Percentage share 90
of sales
80
70
60
50 C
40
B
30 A
20
10

10 20 30 40 50 60 70 80 90 100

Cumulated proportion
(percentage)
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ABC classification
Example of values:

A Goods Value Proportion

High value or share of sales percentage,
low proportion
ca. 80% ca. 10%
B Goods (70-80%) (gering)
Intermediate materials

ca. 15% ca. 20%

C Goods (15-20%) (10-40%)
Low value or share of sales percentage,
high proportion
ca. 5% ca. 70%
(5-10%) (> 40%)
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Goals of the ABC Analysis

Separation between
essential and non-essential

Identification of starting
points for improvement

Avoidance of uneconomical efforts

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Measures for A goods

Disposal Stock avoiding inventory management
Exact determination of (low) safety stock Order based
instead of consumption based management by value
percentages.
Consumption based management by high sales
percentages.
Order processing Intensive price negotiations
Qualification of alternative suppliers
Fast invoice cycle in order to secure cash discount
periods.
Inventory Permanent inventory
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Different kinds of handling of M types regarding

A part C part
• Purchase market research Global Sourcing e-procurement

• Value analysis necessarily not necessary

• Assessment of demand deterministic stochastic

• Stock-taking permanent Once a year

• Safety stock small big

• Order cycle high -JIT greater cycles

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Analysis example:
Yearly Costs Contribu- Relative Cumulated Classifica- Relative
demand (per piece tion to total contribu- contribution tion contribu-
(in piece) in Euro) costs (in tion to to total tion to
Material
thousand total costs costs quantity
Euro) percen-
tage

1 300.000 10,00 3.000 3% 30%

2 10.000 3.000,00 30.000 30% 1%

3 90.000 500,00 45.000 45% 9%

4 200.000 100,00 20.000 20% 20%

5 400.000 5,00 2.000 2% 40%

Sum 1.000.000 100.000 100% 100%

1 2 4 5 6
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ABC Analysis procedure

1. Determination of absolute total costs
Absolute total costs = yearly demand * piece price
2. Determination of relative proportions of the total costs
Relative proportion of total costs = absolute total costs / total costs
3. Sorting according to relative contribution to total costs
(in descending order)
4. Accumulation of relative contributions to total costs
5. Classification of materials into three categories
Accumulation of individual relative total costs
6. Determination of relative quantity proportions
Relative quantity proportion = yearly demand/ total demand
7. Summation of relative quantity proportions per material class
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Analysis example – based on value

Material Yearly Costs Contribution Relative Relative Cumulative Classifi-
demand (per piece to total costs contribu- contribu- contribution cation
(in piece) in Euro) (in thousand tion to tion to to total
Euro) total costs quantity costs
percen-
tage

1 300.000 10,00 3.000 3% 30% 98% C

75%
2 10.000 3.000,00 30.000 30% 1% A

3 90.000 500,00 45.000 45% 9% 45% A

4 200.000 100,00 20.000 20% 20% 95% B

5 400.000 5,00 2.000 2% 40% 100% C

Sum 1.000.000 100.000 100% 100% 100%

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Analysis example – based on quantity

Material Yearly Costs Contribution Relative Relative Cumulative Classifi-
demand (per piece to total costs contribu- contribu- value to cation
(in piece) in Euro) (in thousand tion to tion to total sales
Euro) total costs quantity
percentage

1 300.000 10,00 3.000 3% 30% 70% A

100%
2 10.000 3.000,00 30.000 30% 1% C

3 90.000 500,00 45.000 45% 9% 99% C

4 200.000 100,00 20.000 20% 20% 90% B

5 400.000 5,00 2.000 2% 40% 40% A

Sum 1.000.000 100.000 100% 100% 100%

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Different ABC analyses

Criterion Reasons
Stock value Amount of capital lockup;
Stock reduction potential
Quantity of consumption Order picking; Warehouse organisation;
storage strategies

Turnover ratio Sales volume ; Assignment in

warehouse
Volume of sales Amounts of coverage; Selection of
scheduling methods
Service level Safety stock; customer satisfaction

Reference volume of suppliers Supplier selection

Amount of demand Material requirements planning; Sales
volume
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Fields of application
Range Character Key figure
Material / Material
Purchasing volume
groups
Purchasing
Supplier Invoice amount

Product Sales
Sales
Sales organization Incoming orders

Clients / Client groups Sales

Marketing
Sales area Sales

Quality management Supplier Defective products

Inventory management Material Access frequency

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Criticism on the methodology of ABC Analysis

The classification into only three categories us very rough.

The determination of limiting values is based on empirical

values and is thus random.

The ABC Analysis offers only a figure of the current

actual situation.
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Summary
Characteristics of the ABC Analysis
• General classification of characteristic values in respect of the importance
with certain operating figures.
• Concentration by the following trisection:

A important premium top-selling

B less important median average levels of
turnover
C Relatively low-value narrow market
unimportant
Advantages of the ABC Analysis
• Analysis of complex problems with justifiable effort (by focussing on the
essential factors)
• Simple application (in many fields)
• Very clear and graphical presentation of the results
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XYZ Analysis
Ability to
Category Consumption
schedule

X constant, fluctuations rarely High

Wilder fluctuations, often for reasons

Y Middle
of trend or seasonal reasons

Z Completely unsteady Low

The ABC Analysis is often combined with a XYZ Analysis.

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Disposal process with a combination of ABC and XYZ

Analysis

Classification of conductor plates Recommended Disposal processes

according to ABC/XYZ Analysis

A B C ∑
40 32 2 74
X
2 8 32 42
Y
0 10 101 111
Z
∑ 42 50 135 227

(Source: Österreichisches Schulportal des Bildungsministeriums)

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Determination of scheduling guide lines

Delivery of components
from the inventoy buffer
Inventory buffer at the
of the supplier
production site
synchronous to
production

Implementation of a supplier
kanban by using a logistics
service provider

Quelle: RWTH Aachen

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Classification of parts for die program and

stock production

Production
Type Charakterization
release
• Date and lotsize are fixed
A-Parts deterministic • low fluctuations in demand

• Date and lotsize depend on current,

B-Parts order operated deterministically identified demand
• Lotsize is fixed
C-Parts consumption-driven • Dates according to consumption of
parts
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…AX good can be planned in more detail than CZ

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goods…

A B C
R R
high value percentage average value percentage low value percentage
X continuous demand continuous demand continuous demand
high predictive value high predictive value high predictive value

R C
high value percentage
Y fluctuating demand
average predictive value
average value percentage
fluctuating demand
average predictive value
low value percentage
fluctuating demand
average predictive value

C C
high value percentage average value percentage low value percentage
Z irregular demand
low predictive value
irregular demand
low predictive value
irregular demand
low predictive value

{Potential for Rationalization  Control complexity  }

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The material portfolio „Relevance for the result“

vs.
„Exercise risk“
high

Strategical
Handle material material

Provision principles
Relevance
for
the result
Noncritical Bottleneck
material

• Strategical material
low Exercise risk high • Bottleneck material
• Handle material
• Noncritical material
Quelle: „Grundzüge der Beschaffung, Produktion und Logistik“, Pearson Studium
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The material portfolio

• Strategical material:
close oberservation and exact forecasts, long-term supplier
relations, joint projects

• Bottleneck material:
additionally more suppliers or other material

• Handle material:
intensive discussions about price, order size optimization

• Noncritical material:
rough planning, stockpiling, standardization,
reduction of suppliers
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Program-oriented determination of demand

Article code 10 Description: gear box

Piece Article code Description

Parts lists: Drag

Upper part complete

Back gear complete

Parts lists according to
Axle drive shaft complete

amount Screw

Axle drive shaft complete

Parts lists according to
Axle complete

structure Center box

bearing
Modular parts lists
bearing
Axle

Splined key

Screw

Axle

Gear wheel

Gear wheel

Cope

Gear wheel

Gear wheel

Quelle: „Grundzüge der Beschaffung, Produktion und Logistik“, Pearson Studium

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Gozintograph

The Gozintograph is a directed graph which

describes what parts make up one or more
products. Thereby, the production process can
be multi-level, whereas the input consists of raw
materials, semi-finished and finished parts. In
the Gozintograph is listed how these parts are
quantitatively linked. Thereby, the knots describe
the parts and the directed edges specify how
many units of a part incorporate into a unit of a
downstream part. (Wikipedia)

Quelle: „Grundzüge der Beschaffung, Produktion und Logistik“, Pearson Studium

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JIT as a total concept

Objective: „Elimination of the enduring waste and delay

at each step from the raw material to the end customer …“

i.e. not only a production synchronous procurement, but also:

Minimization of waiting time (Zero Lead Times)
Minimization of workin time requirement (Zero Handling)
Minimization of set-up times (Zero Set-Up)
Minimal lot sizes (Zero Lot Size)
Minimization of Quality defects (Zero Defects)
Minimization of fluctuations in production (Zero Surging)
Quickest troubleshooting and preventive maintenance (Zero Breakdown)

Quelle: Prof. Dr.-Ing. W. Ullmann

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JIT logistics
Objective of the JIT logistics is to guarantee a maximum added value in
manufacturing processes:

Minimal material coverages at the place of consumption (max. 120 min)

Frequent delivery (picking at a high variety)
Removal-compatible provision, Tendency to special carriers,
Avoidance of packing material
Minimal number of handling steps, ideally „ship-to-line“ without receiving storage
location; placed on the line directly from the supplier
Route controlled delivery according to schedule, use of logistics hauls instead of
forklifts (bus instead of taxi principle)
Use of Material providers for the constand distribution, maybe separation of
material
Self-controlled Kanban control loops for continuous consumptions
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JIT logistics (cont.)

Trustful partnersip between supplier and consumer because of the
increased uncertainty of the supply due to inventory reduction,
Common continuous improvements in the collaboration between
partners,
Reduction of the number of suppliers („single sourcing“) due to high
handling costs,
The short-term nature of delivery schedules requires a high flexibility of the supplier,
Production without inventory is only possible when the configuraton of the single
delivery schedules occurs with the highest degree of accuracy,
Zero defects quality („100% good parts“),
Integration of efficient logistics service providers,
Integrative, economic levels spanning information supply.
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JIT logistics

Synchronous processes in
single piece flow reduce
inventories!

Highly frequent materials handling

in small quantities :
Small load carrier replace bulk containers
Logistics hauls replace forklifts
(Bus instead of taxi-principle)
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The origin of the KANBAN system

The beginnings of the KANBAN system go back to the fifties of this century.

Reasons (Raumknappheit, Kapitalmangel) forced the enterprisers (espcially

in Japan) to particular strains to reduce their inventories and den to rationalize
the material flow withing the production area and also between the plants.

From this rethinking the Just-in-time principle (JIT) was developed and the
KANBAN system as a particular form of realization.

This system can not only be transferred to the area of purchase and
stockkeeping, but it can also be used as a simple self-regulating
manufacturing control.
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Objectives of the KANBAN system

A KANBAN system is essentially characterized by a low

amount of control installation and beyond that it pursues the following logistics
objectives :

Reduction of material stocks

Reduction of lead times
Increase of transparency of the operational process
Increase of working productivity
Increase of flexibility regarding the short-term willingness to
supply
Increase of quality control
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Functionality of the KANBAN system

The most important elements of the KANBAN system are:

Division of production in a system of meshed, self-regulated control circuits,

consisting of each with a parts concsuming area (sink) and the belonging
upstream parts producing area (source).
Setup of an intermediate bearing (buffer) between parts consuming and parts
producing area in order to compensate irregularities or interruptions in the
production process.
Introduction of the pull principle for the each with successive consuming area.
Use of special information carriers that serve as KANBAN route cards for the
actual manufacturing control.
Assignment of the short-termin control responsibility to the executing
employee so that a central manufacturing control is no longer necessary.
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Material and information flow in production

organized as a KANBAN system
KANBAN control KANBAN control KANBAN control

Welding
Cut
shop
Procurement

Assembly of product
KANBAN control KANBAN control

Customer
Mechanical

Sub-assembly
production

KANBAN control

External supplier

Intermediate storage Production area Material flow Control

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Kinds of KANBAN control

Transport Kanban Production Kanban

The transport kanbans control the Production kanbans control the

material flow between the warehouse information and material flow
and the successive production area. between the producing area and the
warehouse and typify the production
For this tasks the transport kanbans orders for the single parts.
are provided with the following
information to each part: Beside all data of the transport
• Article code kanban a production kanban
• Name additionally contains information
• consuming area about kind and quantity of the
• producing area dependent requirements for the
• storage location production of the semifinished
• kind of box product respectively the product.
• box capacity
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Control questions to the ABC-/XYZ analysis

1. What is your understanding of ABC- und XYZ analysis?
2. What does the principle of Pareto mean?
3. What does the Lorenz curve express?
4. What is the procedure for both methods?
5. What has to be considered with A-articles?
6. Why do you have to perform a combined ABC-/XYZ analysis?
7. What is meant by the material-portfolio?
8. What do you understand by Kanban?
9. Which two types of kanban control do you know?
10. What has to be considered with the JIT concept?
11. What is a parts list?
12. What kind of parts lists do you know?
13. What is a Gozintograph?
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Literature
1. T. Gudehus, „Logistik – Grundlagen, Strategien, Anwendungen“, 3.Aufl.,
Berlin: Springer-Verlag, 2005
2. M. Lensing, „Materialwirtschaft und Einkauf“, Gabler Verlag, 2009
3. H. Wannenwetsch, „Integrierte Materialwirtschaft und Logistik: Beschaffung, Logistik,
Materialwirtschaft und Produktion“, 4. Aufl., Springer Verlag, 2010
4. R. Vahrenkamp, „Logistik. Management und Strategien“, 6. Aufl., Oldenbourg Verlag, 2007
5. Kee-hung Lai, T.C.E. Cheng, „Just-in-Time Logistics“, Gower Publishing, Ltd., 2009
6. H. Takeda, „Das synchrone Produktionssystem: Just-in-time für das ganze
Unternehmen“, 7. Auflage, Vahlen Verlag, 2012
7. H. Werner, „Supply Chain Management: Grundlagen, Strategien, Instrumente und
Controlling“, 4. Aufl., Gabler Verlag, 2010
8. R. G. Poluga, „Quistissenz des Supply Chain Managements: Was sie wirklich über Ihre
Prozesse in Beschaffung, Fertigung, Lagerung und Logistik wissen müssen“, Springer
Verlag, 2010
9. R. Koether, „Taschenbuch der Logistik“, 4. Aufl., Hanser Verlag, 2011