Your business depends on sales, but, how and when you sell is equally important. Some products sell faster and hardly remain on the shelves while other SKUs are affected by seasonality. They have longer sales cycles taking longer time to reach the final customer. Tracking the inventory flow might look easy but vague ideas will provide informed decisions. If you want to understand product assortment, you’ll need time-bound, clear and accurate data. Enter FSN analysis.
What is FSN analysis? Don’t worry, let’s reveal the nitty-gritty of the inventory tracking technique starting with the basic concept.
What is FSN Analysis? A Beginner’s Guide
Companies use this classification tool to divide their stock into three broad categories.
- Slow-moving items
- Fast-moving items
- Non-moving items
The main goal of dividing the items is to reduce labour and material expenses. Here are the factors playing a crucial role in the FSN analysis.
- Average Inventory Value – This measures the duration of an item before being sold or used. Slow-moving items are measured as they tie up capital and storage space.
- Stock Consumption – This value calculates the pattern of stock consumption in a given period. It measures the frequency of stock purchased, used, and sold.
- Demand Forecast – Predicting the future of inventory by analysing sales trends and market demand. This criterion is vital to managing non-moving items which accumulate and turn into dead stock.
These three categories provide a complete view of inventory trends, guiding businesses to reduce waste and optimise inventory levels according to company goals.
What is FSN Analysis? The Core Steps
FSN categorises items based on their consumption rate. Here is a step-by-step breakdown of the entire process.
1. Collecting Data
Gather relevant data on all inventory items stored in distribution centres and warehouses. This should include the below information:
- Total Quantity
- Item Name
- Consumption rates across multiple periods(monthly, quarterly, and yearly)
- Purchase and restocking dates
2. Calculate the Consumption Pattern
Note the consumption rate of each item stored in your warehouse. This is calculated by using a basic formula.
Rate = Quantity/Time Period
Example – 300 units are sold in 30 days so the consumption rate will be 100 units in that particular period.
You can use automation tools, spreadsheets, and inventory management software to calculate and retrieve the value.
3. Classify the items into FSN Groups
As discussed earlier, divide the items into fast-moving, slow-moving, and non-moving stock. The categories differ based on industry standards and niche.
4. Data Analysis
Once data retrieval is complete, review the information to understand item distribution across all supply channels. Look for insights like:
- Percentage of items in each category
- Value distribution
- Consumption trends
Data visualisation tools and graphs enable you to understand the information through detailed dashboards.
5. Implement Inventory Management Strategies
Take proper action based on the analysis report.
- Ensure fast-moving items are prioritised and maintain an optimum level for smooth operations. Frequent orders and restocking can be done to manage the items.
- Monitor slow-moving items and consider reshuffling the quantity to avoid excess stock. It is also important to understand the demand for these items.
- Pinpoint the reasons for dead stock. Cross-promotion, discounts, and reducing product assortment can be done to tackle dead inventory.
6. Final Communication and Adjustment
Understanding what is FSN analysis requires a mindset change. This is not something to be executed once or twice a year. FSN includes regular reviews of seasonal variations, patterns, and market trends. Set a periodic review mechanism and enable automation tools to gain real-time inventory updates.
Adjust the categories to match industry expectations and communicate the findings to all departments so the working staff understands their role in inventory management.
Next, let’s take another leap into the journey of FSN analysis and understand its pros and cons.
What is FSN Analysis? The Good and The Bad
FSN analysis in inventory management is a powerful technique to monitor inventory trends. Here is a look at the pros and cons of the inventory calculation method.
Pros
1. Better Stock Control
FSN helps businesses identify items that require frequent replenishment. This eliminates stockouts and decreases the accumulation of non-moving items. Companies can optimise their order process through detailed categories, simplifying the stock management process.
2. Cost Savings
Every business owner wants to save costs and optimise their operations. FSN analysis minimises inventory of slow and non-moving items, eliminating holding, insurance, and material costs.
Businesses can take quick action to reduce waste and optimise their resources seamlessly.
3. Robust Decision-Making
You gain clear insights into inventory usage patterns, enabling you to make informed decisions about sales strategies and restocking inventory.
4. Faster Operations
Understanding product assortment and items that move quickly allows better coordination with suppliers and other stakeholders. The result is improved customer satisfaction by meeting demand throughout the year.
Next, let’s look at the cons to gain complete clarity on what is FSN analysis.
Cons
1. Static Analytical Technique
FSN is based on historical data and past forecast trends. It doesn’t include seasonal variations, dynamic market trends, and sudden industry fluctuations. The fixed categories are inflexible to accommodate versatile inventory movements.
2. Harder to Implement
FSN require significant resources, time, management, and skilled workforce. Resistance to change can cause discord between employees and management, especially if outdated inventory tools are used in the organisation.
3. Data Dependency
Accurate and up-to-date data is the backbone of FSN analysis. Incorrect data collection and reporting can create discrepancies in inventory calculation, causing disastrous effects.
4. Oversimplified Approach
Dividing the inventory into three categories overlooks items that require unique management strategies. The emphasis on fast-moving items lowers the scale for slow-moving items which might hold strategic importance in the long-term.
If you are still wondering what is FSN analysis, let’s quickly solve the commonly asked queries in the next section of the blog.
FAQs: What is FSN Analysis? An In-depth Inventory Guide
What is the FSN analysis in pharmacy?
Regardless of the industry, It categorises the stock into three broad categories: fast, slow, and non-moving. The consumption rate is a crucial parameter to segregate products in your inventory.
What is the difference between ABC and FSN analysis?
FSN classifies items based on movement while ABC prioritises items based on their importance in the supply chain.
What is SOS analysis?
SOS which stands for Start of Season is used to measure stock and sales performance at the beginning of a new season. SOS analysis helps businesses manage seasonal demand changes so they have the right products at the right time.
Conclusion
What is FSN analysis? The crux of the question involves looking at its steps, pros, and cons. It is a critical inventory technique to manage stock throughout the year. The three broad categories simplify product organisation, boosting operational efficiency and fulfilment speed. Facing similar logistics bottlenecks? Get in touch with Qodenext to solve complex supply chain problems.
