Efficient Inventory management plays a vital role in the success of any business. Some products on the warehouse shelf sell faster. Companies need to replenish them repeatedly to avoid understocking or out-of-stock issues. Simultaneously, there will be items on the shelf that are affected by seasonality. They stay for a longer time and increase holding costs.
Now, businesses use FSN analysis to classify inventories, i.e., fast, moving, slow-moving, and nonmoving. The classification helps to reduce costs and optimizes inventory management in the warehouse. It enables businesses to make informed purchasing, sales, and distribution decisions.
What is FSN Analysis in Inventory Management?
FSN analysis means classifying products in the warehouse based on fast-moving, slow-moving, moving, and nonmoving. This analysis even improves the decision-making process of a business.
Most enterprises can improve their inventory management by classifying items based on their movement rate. One such technique is FSN analysis. It helps companies to identify products that need regular replenishment and recognize slow-moving items that require attention.
FSN analysis can reduce problems like overstocking and understocking issues in a business.
The Company quickly sells fast-moving items. Hence, companies need to pay regular attention to these products to prevent stock-out problems. These products are usually not durable and are sold at low prices.
Some of the examples of fast-moving items include eggs, bread, fruit, vegetables, and many more.
Slow-moving items do not have much demand compared to the fast-moving items. Companies need to inspect it at periodic intervals to avoid overstocking problems. They need to initiate promotional strategies for selling out slow-moving items from the warehouse.
Non Moving items are usually sold from the warehouse storage within a specific period. These items increase the warehouse storage costs of the Company. Certain items can become obsolete within that period.
Let’s discuss FSN analysis in inventory management with an example.
Let there be 100 products in the company warehouse.
75 products are fast-moving
15 products are slow-moving
10 products are non-moving
The categorization will help a company keep stock of fast-moving items and initiate promotional strategies for slow-moving items. They need to address the nonmoving items to optimize the inventory level in the warehouse.
How To Do FSN Analysis Step-by-Step Process
- The business needs to choose a specific period for data analysis.
- The business needs to collect data about inventory based on consumption rates and movement frequency.
- The business needs to classify items based on fast-moving, slow-moving, moving, and nonmoving items.
- The business needs to develop specific strategies for each of the items. For example, they should keep fast-moving items always in stock. They need to monitor slow-moving items and use promotional strategies to sell them. Thirdly, they should address non moving items through liquidation.
FSN Analysis Formula With Example
Businesses need to use formulas for classifying fast-moving, slow-moving, moving, and nonmoving items.
| Item | Opening Stock | Received | Issued | Period | Holding days |
| A | 50 | 160 | 170 | 30 | 4500 |
| B | 50 | 50 | 50 | 30 | 2,400 |
| C | 100 | 0 | 100 | 30 | 3000 |
Step 1: Average time of stay = Cumulative holding days /(Total quantity received + opening balance)
Now, applying this formula
A = 4500/(160+50) = 21.42 days
B = 2400/(50+50) = 24 days
C = 3000/(100+0) = 30 days
Step 2: Now, businesses need to calculate the consumption rate of each item. The formula is
Formula: Consumption rate = Total issued quantity/duration
- Consumption rate for A = 170/30 = 5.66 units/day
- Consumption rate for B = 50/30 = 1.66 units/day
- Consumption rate for C = 100/30 = 3.33 units/day
Step 3: The business needs to calculate the cumulative average stay. (sort by descending)
C: 30
B: 30 +24 = 54
A = 30+24+21.42 = 75.42
Step 4: Now, the business has to calculate the cumulative consumption rate
A: 5.66
B: 5.66+1.66 = 7.32
C: 5.66+1.66+3.33 = 10.65
Step 5: Now, the business needs to calculate the percentage average time of stay
Apply the formula
(Cumulative average stay of item/cumulative average stay of all items) *100
A = (75.42/75.42)*100 = 100%
B = (54/75.42)*100 = 71.59%
C = (30/75.42)*100 = 39.77%
Step 6: Now, the business needs to calculate the percentage consumption rate
A: (5.66/10.65)*100 = 53.14%
B: (7.32/10.65)*100 = 68.73%
C: (10.65/10.65)*100 =100%
Benefits of FSN Analysis
There are various benefits of FSN analysis, which are listed below.
1. Optimizes Storage Space
FSN analysis ensures that all the demanding or fast-moving products are kept in easily accessible locations. Again, the warehouse staff can keep non moving items in less accessible areas. This maximizes storage space inside the warehouse.
2. Reduces Wastage
FSN analysis identifies obsolete items from the warehouses and thus reduces a business’s waste.
3. Improves Customer Satisfaction
FSN analysis keeps highly demanding products available to customers and thus enhances customer satisfaction.
4. Enhances Decision Making
FSN analysis optimizes the inventory inside the warehouse and avoids problems like overstocking and out-of-stock issues. Thus, this allows businesses to make better decisions.
Final Words
FSN analysis is a powerful inventory technique that allows for the categorization of stock based on consumption rate. It improves warehouse and logistics efficiency and reduces a business’s inventory holding and obsolescence costs.
AAJ Supply Chain Management
