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Optimize Inventory Control with Roadmap ERP – Leverage FSN Analysis for Better Stock Decisions
Experienced business owners are well aware, whereas novices who are new to business also may soon understand that the effective management and control of inventory play a critical role in determining the profitability and growth of one's business.
Businesses today encounter pressure to stay up with consumer trends and preferences. Warehouse and inventory managers must respond proactively to these changing trends, staying one step ahead of the customer. Inventory management primarily deals with the control and improvement of inventory levels within an organization. It focuses on maintaining the right inventory quantity at the right time and place to meet customer demand while minimizing holding costs and stockouts.
What is FSN Analysis?
The inventory analysis classification is determined by how soon the product moves out of the inventory. FSN analysis is one of the most common and prime inventory control methods businesses adopt. It provides a reliable and standard technique to manage, monitor, and control inventory.
FSN analysis works by dividing inventory into fast-moving, slow-moving, and non-moving items based on their sale rate.
Fast-moving inventory (F) refers to the goods that are sold quickly and have an inventory turnover ratio of more than 3. These items typically account for 15% to 20% of the total inventory value, but they generate a large percentage of the total sales revenue. Examples of fast-moving inventory include milk, eggs, fruit and vegetables, meat products, over-the-counter drugs like paracetamol and aspirin, etc.
Slow-moving inventory (S) refers to the goods that are sold slowly and have a low inventory turnover ratio (ITR) between 1 and 3. These items typically account for 30% to 35% of the total inventory value, but they generate a small percentage of the total sales revenue.
Non-moving /Dormant inventory (N) refers to the goods that are not sold at all and are typically considered dead stock. It covers almost 50-55% of the items stored in the inventory and inventory turnover ratio is less than 1. It is a category which is mostly ready for disposal since it can tie up valuable resources and incur carrying costs such as storage and insurance.
How to conduct FSN analysis?
FSN analysis is useful for effectively managing total inventory, the order fulfillment process, inventory space management, and cost reduction.
To conduct an FSN analysis for inventory control, follow the steps listed below.
Step 1: Create an inventory list and determine each product's annual demand, unit price, and annual consumption rate.
Step 2: Arrange the existing inventory products in decreasing order based on annual utilization.
Step 3: Determine the percentage of yearly utilization, average cumulative stay, and percentage of annual usage for each existing inventory item.
Step 4: Sort the inventory into the F, S, and N categories. It is calculated based on the cumulative proportion of annual demand.
The following are data should be collected to perform the FNS analysis effectively -
1. Name of the item
2. Turnover ratio
3. The annual demand for a specific item.
4. Unit price of each product.
5. Annual usage of each item.
6. Cumulative consumption rate of each product.
How to calculate FSN?
In the FSN Analysis Inventory Management technique, the main goal is to reduce material costs, labor costs, and turnover costs and here are some parameters of the FSN analysis:
The consumption rate of a product - In a given period, the percentage consumption rate, at which stocks get expended or replenished.
Consumption Rate = Total issue quantity + Total duration
The average stay in inventory - The average percentage stay of each item in the inventory, till the time it is sold.
Average Stay = cumulative no. of inventory holding days [or unit of time] / (total quantity of items received + opening balance)
Period of analysis - Specifies when you are conducting inventory analysis, whether in six months or a year.
Particulars
F-Class Item
S-Class Item
N-Class Item
Stock
High
Intermediate
Low
Control
High
Intermediate
Low
Check
Tight
Intermediate
No
Safety Stock
High
Low
Rare
Pros of FSN Analysis
FSN analysis is efficient in finding dead stock and reducing its overstay in the inventory.
It is an effective method to increase revenue by focusing on fast-moving goods and reducing the production of slow-moving or non-moving products. If the FSN analysis is closely inspected, the shifting trend from one product to another can be closely monitored.
FSN helps retailers to make better decisions regarding the product's future benefits for the business assisting them to adjust their strategies accordingly. It also helps to cut inventory-carrying costs such as storage, insurance, and depreciation and eliminates stock overstays.
It empowers the retailers to decide on the future of the business of each product.
FSN analysis facilitates removing the non-moving products at the correct time to avoid the inventory carrying cost.
Cons of FSN Analysis
Businesses can reap multiple benefits by performing FSN analysis but it doesn't come without its drawbacks.
Complexity: One of the shortcomings of FSN analysis is that it is entirely dependent on formulas and information acquired about a product. If the information is incorrect, the FSN analysis will be both erroneous and flawed. Since you will be managing your inventory based on FSN analysis, you cannot afford for it to be inaccurate.
Dynamic Market Conditions: Rapid changes in market trends and consumer preferences can affect the accuracy of FSN classification, leading to potential inventory mismanagement.
Overemphasis on Speed: Focusing primarily on the speed of inventory movement might overlook other important factors such as profitability and product lifecycle.
Conclusion
Businesses of all sizes can benefit from the use of FSN analysis, which is an invaluable methodology for optimizing inventory levels, cutting expenses, raising profits, raising customer happiness, and improving inventory management decisions. They can make changes to their inventory management procedures by gathering sales data, figuring out sales velocity, classifying inventory goods and modifying stock levels, ordering, and pricing.
Roadmap ERP's Inventory Management module can perform Fast, Slow, Non-Moving (FSN) inventory analysis by preparing and organizing inventory data, analyzing and classifying the data, and performing advanced calculations.
