Meaning of FSN Analysis
FSN Analysis is an inventory management technique that is based on the rate of consumption of spares and goods in an organization. This analysis divides the inventory into three categories based on their speed or rate of utilization, their consumption rate, and average stay. FSN stands for Fast-moving, Slow-moving, and Non-moving.
Fast-moving inventory comprises inventory that moves in and out of stock fastest and most often. Therefore these goods have the highest replenishment rate. Items in this category generally comprise less than 20% of the total inventory.
Items in this category move slower, so their replenishment is also slower. This category comprises around 35% of the total inventory in an organization.
The last category of this analysis is the least moving portion of the inventory and also includes the dead stock. Replenishment of such inventory may or may not occur after utilization. This category can go as high as 55%-60% of the total inventory in organizations.
FSN Analysis and calculation
FSN analysis makes use of a few parameters to arrive at the three categories of goods in the inventory. Since it is a scientific analysis and not based on the judgment of a few individuals, formulas are used to arrive at figures which tell us if a good belongs to a fast-moving or slow-moving, or non-moving category.
Average Stay: Number of cumulative days inventory is held/ (Opening Balance of the good + Number of goods received during the period)
Consumption Rate: Total number of goods issued/ Total period
The next step is to calculate the Cumulative average stay and Cumulative consumption rate.
Cumulative average stay: Average stay of the item + Average stay of all goods having an average stay more than itself
Cumulative consumption rate: Consumption rate of the item + Consumption rate of all goods that are consumed faster
Percentage average stay: (Cumulative average stay of the item/ Cumulative average stay of all goods) x 100
Percentage consumption rate: (Cumulative consumption rate of the item/ Cumulative consumption rate of all goods) x 100
As per Cumulative average stay, FSN analysis goods have three categories:
- Fast-moving goods comprise of 10% or lesser of the average cumulative stay calculated.
- Slow-moving goods comprise of 20% or lesser of the average cumulative stay calculated.
- Non-moving goods comprise of 70% or lesser of the average cumulative stay calculated.
Therefore as per the classification, fast-moving goods stay only 10% or lesser of the cumulative average stay of the total inventory. In other words, they have the quickest movement time of all the inventory.
As per the cumulative consumption rate, the three categories will be:
- Goods with a 70% or less consumption rate are fast-moving.
- Goods with 20% of the cumulative consumption rate are slow-moving.
- Items with 10% or lesser of the cumulative consumption rate are non-moving.
Therefore, again we see that as per the classification, goods that are consumed the quickest are the fast-moving goods. Those with the lowest consumption rates are non-moving goods.
Both the parameters, i.e., the average stay of goods in the inventory and consumption rate of that product, should be simultaneously calculated and used. It helps to arrive at accurate FSN analysis results, and inventory management decisions can be effectively taken based on it.
Importance and Usage of FSN Analysis
FSN analysis helps the management to make informed and accurate inventory decisions. It helps in the optimum utilization of scarce resources and guides the management to make the best use of the money, time, and space available.
- It helps to identify the “deadstock.” The management needs to invest only as per the actual stay and consumption of that product and not make extra purchases. Also, it can identify which item is not moving at all and dispose of it at discounted rates.
- FSN analysis also helps in space management effectively. Slow-moving and non-moving categories of goods can be bought only in limited quantities to avoid jamming of storage space. Also, fast-moving goods can be stored at locations near to entry and exit points of godowns or warehouses that have clear access all the time. It would help in saving time and labor.
- This analysis can be an excellent buying guide in the case of seasonal products. The management will have a clear picture of the time of the year when a product turns into a fast-moving one from a slow or non-moving category. As a result, it can time its purchase accordingly.
- FSN analysis helps to effectively allocate monetary resources to items that are fast-moving and beneficial for the organization. As a result, it helps to avoid blocking money in the slow-moving or non-moving category of goods.
Visit Inventory Management Techniques for a brief intro on various other techniques.
As discussed above, the FSN analysis has a lot of advantages. But it has its limitations as well. Consumer tastes and preferences keep changing at a fast pace in modern times. Therefore, a fast-moving product can shift to a slow-moving or non-moving category within a matter of a few days. If the management solely relies on FSN analysis and keeps investing in the product, thinking it to be fast-moving, it can be perilous. It can lead to over-production or purchase and subsequently result in dead stock and blockage of money and storage space. Also, the management needs to be careful in the case of seasonal products where demand rapidly shifts and falls.
But the advantages of FSN analysis outnumber the limitations easily. It helps to categorize and maintain optimum inventory levels as per the actual movement of the goods over some time. Also, it is a scientific technique of inventory management and control and gives an accurate picture based on facts and figures.