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Administration
Updated on 11/23/2018
Direct link to topic in this publication:
iikoOffice 6.2
ABC/XYZ Analysis of Items

One of the ways to boost your restaurant’s sales is to improve your menu. Higher margin items that have a consistent demand shall never go off your menu. Though low sales items that don’t yield much might be your first choice for that.

ABC and XYZ analyses are here to help you identify such items. The ABC analysis allows assessing each item’s share in the sales structure, while XYZ analysis is designed to measure consistency in sales. These methods might be used both separately and together for a deeper analysis.

ABC Analysis

ABC analysis is ranking of items on the menu in order of importance and on the basis of three groups. Usually, those are sales amount, turnover and profit.

Each of the indicators may fall into a specific group:

  • Group A - the most important goods, bestsellers. 20% of menu items yield 80% of turnover.
  • Group B - medium degree of importance. 15% of menu items yield 15% of turnover.
  • Group C - the least important items - first to be excluded from the menu, or are new items. 65% of items - 5% of turnover.

Eventually, you will get a comprehensive assessment of an item - three-letter acronym. For instance, AAA - ideal menu item, the leader according to all the indicators; ABB - an item that sells good but makes a medium turnover and brings an average profit.

To run this report:

  1. Go to Reports > ABC/XYZ analysis in the main menu and then to the ABC analysis tab.
  2. Set the required reporting period.
  3. To analyze sales of the entire outlet, choose the Select all item in the Storages field. To analyze particular storages, select the them in this field.
  4. Select the Indicators for analysis. By default, those are Revenue, Sales Amount and Profit. You can uncheck indicators or check other ones that have the [ABC] tag. Use three indicators at most, otherwise , the analysis might get too complex and lead to improper conclusions. [Info] indicators are given for reference only and are not involved in calculations. To be able to see those, click Settings and check Show values.
  5. You may analyze not only separate menu items but also groups: categories or stock groups. For this, select the required item in the Detalization field. For instance, you want to evaluate the sales of desserts or happy hour items.
  6. You can assess only those items that fall into a stock group or category. For this, select the required items in the Groups and Categories fields.
  7. Set up ABC group distribution:
    1. Click  in the ABC analysis group distribution field.
    2. Specify the size for groups A and B. C group size will be determined automatically.
    3. Click OK.
       
  8. Click Update.

As a result, you will have a table containing the list of items and group names they belong.

ABC Grouping

To learn how many items fall under each group (e.g. AAA or CCC), go to the Settings and select Grouping (ABC)

This will result in a graph given on the left-hand side of the window in the form of a histogram or chart. This depends on the item selected in the Type field. If there are too many groups or some of the groups are empty, select the required items in the Groups field and click OK. The rest of the groups will be hidden in the Others item.

With time, menu items may change groups. To learn how items changed groups, go to Settings and select Group change dynamics. A chart block will appear at the bottom of the window. Select items and click  Create chart

You may select no more than five items at a time.

ABC Analysis Conclusions

Based on the group data, you can decide what to do with an item: lower the cost, increase a markup, boost sales, or remove it from a menu.

Group 
Number of sales—Revenue—Profit
Conclusion
AAB, AAC, ABB, ABC, BAC Many sales but the margin is low. 
Cost to be lowered or markup increased. 
BAA, BAB, BBA, BCA, CCA, CAB, CBA, CBB, CCA, CCB Few sales but the margin is high. 
Boost your sales.
СССTo be removed from your menu.

Other groups, like AAA or BBB, may be difficult to draw a conclusion about. It may so happen that you have to do something about your AAA items. They may not move so much on your menu and may have a small markup.

Key Ingredients

Key ingredients are goods that compose AAA items and take more than 12% of their weight. There have to be plenty of those in your storage.

To check the stock balance of such goods, click Actions > Key ingredients. The most recent Stock balance report will pop up covering the storages you specified when you were creating the ABC analysis.

Comparative analysis

Use this tool to track changes in items’ popularity and profit-making ability.  For this, we have a graph using two selected parameters on the intersection of which you can see an item.

Depending on the item’s location on the graph, you may:

  • Make a conclusion on how a price change impacts profit and popularity of an item.
  • Graphically compare items using parameters of choice.

To carry out a comparative analysis, follow this:

  1. Go to the Settings menu and select the Comparative analysis item.
  2. On the tab that opens, select parameters that you want to use on the Y-Axis and X-Axis
  3. In the Displayed parameters field, specify what must be compared: change, change percentagewise or indicator values. If you change settings, the graph will be updated automatically.

Graph axes are selected parameters, multicolored points-items. Hover over a point to see an item’s name and a parameter value.

 
Comparative analysis diagram

XYZ Analysis

XYZ analysis is a tool used to categorize items based on consistency in sales for a specific time period. This method helps to determine whether an item is in good demand or for some reasons has no consistency in sales.

In iiko, the XYZ analysis is based on the calculation of the sales coefficient of variation. That is the evaluation of the sales volume deviation from the mean value expressed in percentage. The greater the variation value, the less consistent the sales of an item.

Then menu items get divided into three groups:

  • Group X - items with consistent sales volumes; their coefficient ranges from 0% to 10%.
  • Group Y - items with forecasted but fluctuating volume of sales; the coefficient is 10-25%.
  • Group Z - items with unpredictable demand; coefficient is over 25%.

To run this report:

  1. Go to Reports > ABC/XYZ analysis in the main menu and then to the XYZ analysis tab.
  2. Set the required reporting period.
  3. You can assess only those items that fall into a stock group or category. For this, select the required items in the Groups and Categories fields.
  4. You may analyze not only separate menu items but also groups: categories or stock groups. For this, select the required item in the Detalization field. For instance, you want to evaluate the sales of desserts or happy hour items.
  5. Specify the XYZ interval: day, week, month. The reporting period is divided into intervals, and then, based on their number and deviation of sales per interval from average sales per the entire period, the calculation of the deviation coefficient takes place. The bigger the number of intervals, the more accurate the calculation is.
  6. Configure variation coefficient values for XYZ grouping of items:
    1. Click  in the Coefficient of variation in XYZ analysis: field.
    2. Specify the size for groups X and Y. The Z group size will be determined automatically.
    3. Click OK.

  7. Click Update.

A table will be created containing items (groups or categories) divided into XYZ groups. To be able to see variation coefficients, go to Settings and check Show values.

XYZ Grouping

To learn how many items fall under each XYZ group, go to Settings and select Grouping (XYZ).

Combined ABC/XYZ Analysis

It so often happens that results of both ABC and XYZ analyses are given together. Both methods complement each other. This way, one is able to identify items that have consistent sales and affect turnover the most, as well as loss-making items.

To run this report:

  1. Go to Reports > ABC/XYZ analysis in the main menu and then to the ABC/XYZ analysis tab.
  2. Specify all the parameters that used in the ABC and XYZ analyses.
  3. Click Update.

Results of both reports will be given in one table.

Conclusions

You are able to come to the following conclusions based the acquired results:

  • Steak falls under the AABZ group - generates high revenue and brings substantial profit but has medium and inconsistent sales.
  • BBA items sales good but generate medium revenue and bring medium profit. Salmon has consistent sales, but Greek salad has not.
  • Tequila Boom and White Russian cocktails fell under the CCCZ category. Those are the least valuable items: small volume of sales, poor turnover, lower marginal revenue, and inconsistent sales. Examine such items thoroughly before excluding them from your menu, perhaps those are just new items.

ABC & XYZ Matrix

In case of a combined analysis, a categorical matrix will be created. To open it up, go to Settings and select ABC/XYZ matrix.

Information Only three parameters of the ABC analysis and one parameter of the XYZ analysis are used to create the matrix. If you select 4 or more [ABC] indicators in the Indicators field, it’s only first three ones that will be used for the matrix.

ABC groups are given vertically and XYZ groups horizontally. A cell where these groups cross provides the number of items that belong to them. Double-click the cell to view the list of items.

The combined report contains all ABC and XYZ charts. The charts are given on the left-hand side of the window if they are checked in the Settings menu.