Inventory Classification Analysis

Inventory Analysis Report using FSN Technique

FSN Analysis is a crucial element in inventory and logistics management techniques. Nowadays, businesses across markets and industries face significant pressure due to rapidly changing consumer needs and trends. Inventory and warehouse managers need to respond proactively to these fluctuations and even strive to exceed customer expectations.

The primary objective of inventory management is to enhance profits and optimize supply chain performance by accurately predicting product demand, minimizing inventory carrying costs, and ensuring quality management. Maintaining a steady cash flow is essential for success in the retail sector, which relies on a consistent inventory turnover. Retailers must vigilantly monitor and control their stock movements as they profoundly influence the success or failure of their retail endeavors. Furthermore, they must ensure that their inventory consists of products that generate revenue. In addressing these challenges, FSN technology proves invaluable to the industrial sector.

FSN Analysis: What Does It Involve?

​FSN Analysis categorizes items based on their consumption rate, dividing them into three categories:

    F – stands for Fast-moving
    S – stands for Slow-moving
    N – stands for Non-moving

This technique categorizes products in inventories into these verticals. Fast-moving stock comprises merchandise that sells rapidly and doesn't necessitate prolonged inventory storage. Conversely, slow-moving stock refers to items with a minimal sales rate that largely remain in inventory.

Fast-moving items do not linger in inventory for extended periods; instead, they swiftly turnover due to their high rate of sales. These goods typically yield low profit margins, are non-durable, and are sold at relatively low prices.

Slow-moving items are materials that experience minimal or no consumption over an extended period. In slow-moving inventory analysis, the initial step involves identifying these items. Indicators of slow-moving inventory include lack of activity, decreased activity, or inventory turnover rates below the desired levels specified in the item location record. Slow-moving stock is determined by the variance between the total stock value and the total consumption value. Identifying slow-moving and non-moving stocks is beneficial for reducing inventory carrying costs as it enables the identification and potential removal of unnecessary stock.

"Fast-moving inventory" describes goods that swiftly turnover and necessitate frequent restocking. Typically, items in this category boast an inventory turnover ratio exceeding 3 and constitute around 10% to 15% of the total inventory.

.Inventory with a slower pace through the supply chain typically maintains an inventory turnover ratio ranging between 1 and 3. Typically, this inventory comprises 30–35% of the total supply.

"Non-moving inventory" pertains to stock that seldom moves, exhibiting an inventory turnover ratio below 1, and constitutes approximately 60–65% of the overall stock.

How to Identify FSN Products?

​Typically, to determine the category each product belongs to, you'll need to calculate parameters such as consumption rate, average duration in stock, yearly demand percentage, reorder frequency, and how often products are used or moved from their original position.

The average duration in stock is calculated by dividing the cumulative number of inventory holding days by the sum of the total quantity of items received and the opening balance.

The consumption rate is determined by dividing the total quantity issued by the total duration of the period.

After performing these calculations, it's essential to ascertain the cumulative average duration in stock and the cumulative consumption rate, followed by determining the respective percentages for each.

The cumulative average duration in stock equals the average duration of an item's stay plus the average stays of all items that remain in inventory longer than it does.

The cumulative consumption rate comprises the consumption rate of the item plus the consumption rates of all items consumed more rapidly than it.

​The percentage of average duration in stock is calculated by dividing the cumulative average duration of the item by the cumulative average duration of all items, then multiplying by 100.

The percentage of consumption rate is determined by dividing the cumulative consumption rate of the item by the cumulative consumption rate of all items, then multiplying by 100.

Based on the cumulative average duration in stock,

    Fast-moving products constitute 10% or less of the cumulative average duration in stock.
    Slow-moving products represent 20% of the cumulative average duration in stock.
    On average, non-moving products account for 70% of the cumulative average duration in stock.

Based on the cumulative consumption rate,

    Fast-moving inventory constitutes 70% of the average consumption rate.
    Slow-moving inventory represents 20% of the average consumption rate.
    Non-moving inventory accounts for 10% or less of the average consumption rate.

In general, FSN products are determined using the formulas mentioned above.

An illustration of fast and slow-moving products

Fast-moving products are typically non-durable items that are swiftly sold at relatively low prices. They often include Fast-Moving Consumer Goods (FMCGs) such as groceries, milk, fruits, and vegetables. On the other hand, slow-moving products are those where no units of a specific stock-keeping unit are shipped over a defined period, like 90 or 120 days. The criteria for defining slow-moving inventory may vary; for example, having 10 units or less shipped over a 60-day period could classify as slow-moving inventory.

We've created reports for Fast, Slow, and Non-Moving Products utilizing turnover ratio calculations according to FSN technique principles. These reports are particularly beneficial for FMCGs and retail-based businesses.

For any inquiries or support, please don't hesitate to reach out to us at desk@techverseweb.com.

Healthcare Enterprise Resource Planning