The coefficient of variation is the ratio of the standard deviation of demand to its mean: CV = σ / μ. It is a dimensionless measure of how volatile an item's demand is relative to its average. CV² (CV squared) is used in the SBC framework as a threshold for classifying demand patterns.
Why dimensionless matters
Standard deviation alone is misleading because it scales with the magnitude of demand. An item that sells 1000 units/day with σ = 50 is less volatile (in proportional terms) than an item that sells 5 units/day with σ = 2. CV makes them comparable: 0.05 vs 0.4. The second has eight times the relative standard deviation; that alone does not quantify stockout risk.
CV thresholds in the SBC framework
The Syntetos–Boylan–Croston (SBC) demand classification uses two parameters:
- ADI (Average Demand Interval): the average number of periods between non-zero demand observations
- CV²: squared coefficient of variation of non-zero demand sizes
The four regimes are:
| Pattern | ADI | CV² | Examples |
|---|---|---|---|
| Smooth | ≤ 1.32 | ≤ 0.49 | Daily-sold staples; coffee beans, milk |
| Intermittent |