We suggest going through our previous article on ABC analysis before reading today’s article. XYZ analysis refines the ABC framework by accounting for product demand variations at your pharmacy. Demand variability is how the quantity of a product or service bought changes over time. The variations can impact the availability of products at your pharmacy and lead to a surge in expired items. The higher the variations, the higher the risk, and vice versa. The goal is to reduce the risk as much as possible. Seasonality and trends can lead to an increase in demand for a product at your pharmacy, for example, an increase in demand for products for cold and flu during the cold season.

Products in category X have the lowest variability in their demand. These are the easiest to forecast. Medications for patients managing chronic conditions may fall into this category. Remember that an item may fall into a different segment depending on the individual dynamics of the organization. Category X items have a demand variability of less than 10%. You don’t have to stock many such products. You can order such items frequently. Combining this analysis method with the ABC one, which we discussed in the previous article, gives AX, BX, and CX.

Pharmacy products in category Y have moderate levels of demand variability. Items like allergy medications may fall into this category due to seasonality. You can usually tell what is causing the demand to vary. The variation of the products is between 10% to 30%. Consider maintaining a higher stock safety level for items falling into this segment. Your forecasting method for such products should be more sophisticated than those in category X. Place orders for these items less frequently, for example, every few weeks, as opposed to those that fall in category X that may require daily ordering.

Category Z products have the highest amount of demand variability. Such items have an erratic pattern of demand. Specialty and emergency medications may fall into this category. Items new in the market may also fall into this segment. Products in this category need close monitoring as they are most likely to expire. Combining XYZ analysis with ABC analysis gives segment CZ, which is highly susceptible to expiries. Consider getting rid of stock in the CZ category as quickly as possible. Reach out to organizations like Renew Rx to offer such products for liquidation. Consider putting them up for sale whenever possible, accounting for the regulations within the pharmaceutical industry.

The purpose of XYZ analysis is to refine your decisions from the data from ABC analysis. XYZ analysis accounts for the impact of demand variability on managing stock at your pharmacy. Combining both analytical methods helps reduce the risk of overstocking products most likely to expire. You can also improve the accuracy of your forecasts. The impact is a reduction in lost sales due to preventable cases of stockouts. The process improves your cash flow levels as you reduce inventory costs due to tying your cash on unnecessary stock.