FSN analysis is yet another acronym used in inventory management, however, rather than just being a buzzword, it really does hold a lot of merit to the stock manager. It is one of several useful analyses of inventory that facilitate accurate control and should be considered by anyone wanting to better understand the delicate nature of their products and sales and how to optimise them to reduce inventory overheads and increase the bottom line.
In this article, we introduce FSN analysis and consider some of the benefits of implementing it for your inventory management.
FSN analysis in a nutshell
This acronym stands for Fast-moving, Slow-moving and Non-moving inventory items. The purpose of FSN analysis is to consider quantity, the rate of consumption of products and how often they are issued or used and to use this information to guide decisions about placement in the warehouse (considering picking and packing to reduce time and labour), frequency of reordering or even phasing out of certain items.
For FSN analysis to be successfully implemented, it requires a considered analysis of which products fall into each of these categories. This is done by ascertaining certain pieces of information such as the average stay in inventory and consumption rate of items and identifying a period for analysis according to the following formulae:
Average stay = cumulative no. of inventory holding days [or unit of time] ÷ (total quantity of items received + opening balance)
Consumption rate = Total issue quantity ÷ Total period duration
Once the average stays and consumption rates have been calculated for each product in inventory, the cumulative average stays and cumulative consumption rates can be calculated with subsequent percentages of the total derived from which F, S and N statuses can be assigned. Cumulative average stays and consumption rates can be calculated when ordered into descending order and according to the following formulae:
Cumulative average stay = average stay of item + average stays of all items that stay longer in inventory than itself
Cumulative consumption rate = consumption rate of item + consumption rate of all items consumed faster than itself
Percentage average stay = (cumulative average stay of item ÷ cumulative average stay of all items) x 100
Percentage consumption rate = (cumulative consumption rate of item ÷ cumulative consumption rate of all items) x 100
For cumulative average stays, fast-moving items contribute to 10% or less of the average cumulative stay, slow-moving items contribute to the next 20% and non-moving items contribute to the remaining 70% of the average cumulative stay. This implies F products move faster and remain in inventory for 10% or less of the average stay of all inventory items. They are essentially sold more quickly as they spend the least amount of time sitting in inventory.
For cumulative consumption rates, 70% of the average consumption rate is categorised as F, the next 20% as S and the remaining 10% as N. This implies F products are consumed (or sold) at a rate of 70% or higher of the average consumption rate for all products in inventory. They are essentially sold in greater amounts and have a higher turnover.
Correct FSN analysis takes into account both the average stay in inventory and the consumption rate of items as a combined value to determine the final FSN status of inventory to direct subsequent decision-making.
The benefits of FSN analysis
The basis of FSN analysis is to derive vital data to help guide inventory management decisions. These may include where products should be placed in the warehouse. For example, fast-moving items could be placed in a location that is easily accessible. It can also help determine which items are non-moving and costing money to hold, and what items may require altered ordering plans because they are slow-moving.
When making inventory decisions, it is important to base them on real data and intelligent calculations to ensure the best outcome in terms of supply and demand. For help in obtaining this data or managing inventory generally, it is important to adopt inventory management software, specifically designed for this purpose.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.