Explain the difference between ABC analysis and XYZ analysis in stock management.

• A. ABC ranks by cost value; XYZ by supplier distance
• B. ABC ranks by annual consumption value; XYZ ranks by demand variability
• C. ABC tracks expiry; XYZ tracks temperature
• D. ABC uses random sampling; XYZ uses fixed intervals

Answer: (B)

ABC analysis and XYZ analysis are two ways to tailor inventory control by looking at different properties of items. The key idea is to use value and demand patterns to set policies that fit reality on the shelf. In this pairing, the item ranking by annual consumption value is the hallmark of ABC: a small number of high-value items account for a large portion of total consumption, so they deserve tight stock control, accurate forecasting, and close supplier management. The rest are lower value and receive progressively lighter handling. In contrast, XYZ analysis groups items by how their demand varies over time. X items have very stable, predictable demand; Y items show moderate variability; Z items are highly variable. This informs safety stock levels and review frequency: stable items need less buffer and less frequent checks, while highly variable items require larger buffers and more frequent monitoring. Using both together lets you align financial significance with demand certainty, guiding both inventory investment and replenishment discipline. The other described ideas—such as focusing on supplier distance, tracking expiry or temperature, or choosing random sampling versus fixed intervals—don’t reflect how ABC and XYZ are defined or used.