With each new technology node, there is as usual a corresponding tightening of the overlay requirements. To achieve these requirements in production there is increasingly a need to apply APC strategies, in order to control overlay. However, in order to control overlay successfully using such APC strategies, it is critical to have a thorough understanding of all the sources of overlay error, both grid and intrafield, that contribute to the total overlay budget. Without this thorough understanding, it becomes difficult to establish whether the APC strategy is actually reducing the sources of overlay variation, or in the worst case, actually responsible for their increase. In this paper we present an analysis of the sources of overlay error for three ASML step and scan tools, rank their relative significance and develop a methodology for controlling them by means of an APC strategy. The analysis is based on data collected over a period of more than four months using a baseline monitor. Stability is monitored both with and without feedback corrections from an APC system, in order to optimize the APC strategy. From the analysis we propose a knowledge based APC methodology, using feedback optimization, for overlay control of ASML step and scan exposure tools.