I was trying to understand how to use XYZ analysis when I came upon this article. The author says that using coefficient of variation of an item (which is a ratio of standard deviation and average demand of the item) is flawed as it is a scaled version of standard deviation.
Textbooks have supported the use of coefficient of variation. This is so flawed that every time I read it… well, let me explain the issues. The coefficient of variation is a scaled version of the standard deviation of the historical sales. This tells us nothing about the easiness to forecast sales or not.
^ extract from the article
I wanted to know -
- What is meant by the statement in bold from the passage?
- And, if you would entertain it, under what conditions scaled measures are flawed?