The “9 Box Model” - ABC-XYZ Classification in Demand Planning
By Intelichain’s Team
The “9 Box Model,” also known as ABC-XYZ Classification, is a powerful analytical tool used in demand planning to categorize products based on their value and demand variability. This dual classification system helps organizations prioritize resources, optimize inventory levels, and enhance forecasting accuracy.
Understanding ABC-XYZ Classification
The ABC-XYZ Classification combines two distinct categorization methods: ABC analysis and XYZ analysis. Each product is classified into one of nine categories based on its sales value and demand variability.
ABC Analysis
ABC Analysis segments products based on their contribution to overall sales or value, typically following the Pareto principle:
- A Items: High-value products that contribute the most to sales (usually around 80% of the total value).
- B Items: Moderate-value products that contribute moderately to sales (typically around 15% of the total value).
- C Items: Low-value products that contribute the least to sales (approximately 5% of the total value).
XYZ Analysis
XYZ Analysis categorizes products based on the variability of their demand:
- X Items: Products with low demand variability and high predictability.
- Y Items: Products with moderate demand variability.
- Z Items: Products with high demand variability and low predictability.
The 9 Box Model
By combining ABC and XYZ analyses, products are classified into one of nine categories in the 9 Box Model. This matrix helps organizations develop targeted strategies for each category:
Importance of the 9 Box Model in Demand Planning
- Prioritizing Resources: The 9 Box Model helps prioritize resources effectively. High-value items (A) with low variability (X) are critical for business success and require precise forecasting and inventory management. Low-value, high-variability items (CZ) need less focus and simpler management.
- Optimizing Inventory Levels: Different strategies can be applied to manage inventory based on the classification. For example, AX items might require tight inventory control and frequent replenishment, while CZ items can be managed with minimal inventory levels.
- Enhancing Forecasting Accuracy: By understanding the variability of demand, planners can apply the most appropriate forecasting methods. X items can use simpler models, while Z items may require advanced techniques.
- Risk Management: Identifying high-variability items allows organizations to develop strategies to mitigate risks associated with demand fluctuations, reducing the likelihood of stockouts or excess inventory.
- Strategy Development: Develop tailored strategies for each category. For example, AX items might need sophisticated forecasting and tight inventory control, while BZ items could benefit from buffer stocks and flexible supply chain strategies.
The 9 Box Model, or ABC-XYZ Classification, is a valuable tool in demand planning that helps organizations manage their product portfolios effectively. By combining value-based and variability-based classifications, businesses can prioritize resources, optimize inventory levels, and enhance forecasting accuracy. Implementing this model in your demand planning process will lead to improved operational efficiency, cost savings, and better customer satisfaction.
