FSN analysis is a method of categorizing inventory into Fast-Moving, Slow-Moving, and Non-Moving items based on consumption rates.
This article will guide you through its importance, how to calculate it, and strategies for better inventory management.
We’ll also explore how modern tools like Tag Samurai can simplify and enhance the process, ensuring optimal efficiency for your business.
What is FSN Analysis?
FSN analysis is a technique that classifies stock into three categories:
- Fast-Moving (F): Items with high turnover, essential for operations or sales.
- Slow-Moving (S): Products with moderate demand, requiring closer monitoring.
- Non-Moving (N): Inventory with little or no movement, potentially tying up capital.
The goal is to align your inventory strategy with consumption patterns, ensuring you’re not overstocking or understocking crucial items.
Why FSN Analysis Matters
Efficient inventory management is critical for any business aiming to optimize operations and reduce waste.
FSN analysis categorizes inventory into Fast-Moving, Slow-Moving, and Non-Moving items based on their consumption rates.
This categorization helps businesses prioritize resources, improve stock visibility, and avoid unnecessary costs.
For instance, did you know that up to 20% of inventory in warehouses becomes obsolete annually? (source: Supply Chain Quarterly).
FSN analysis helps mitigate this risk by identifying items at risk of obsolescence early.
How to Calculate Them
Figure Consumption Rate for Each Product
- Make an Itemized List: Start by listing every product in your inventory.
- Determine Total Sales: Find out how many units of each product were sold over a specific time period, such as a month or a quarter.
- Calculate Consumption Rate: For each product, divide the total number of units sold by the number of days in that period. This gives you the average daily consumption for each product.
Quantify Average Stay for Each Product
- Determine Inventory Levels: Record how many units of each product were in stock at the beginning and end of the time period.
- Calculate Average Inventory: Add the opening inventory to the closing inventory and divide by two to find the average inventory for each product.
- Calculate Average Stay: For each product, divide the total number of days it was held in inventory by the average inventory calculated previously. This tells you how long, on average, each product stays in stock.
Determine Cumulative Values
- Cumulative Consumption Rate: For each product, add its consumption rate to the consumption rates of all products that are consumed more quickly. This gives you a cumulative consumption rate for that product.
- Cumulative Average Stay: For each product, add its average stay to the average stays of all products that remain in inventory longer than it does. This gives you a cumulative average stay for that product.
Calculate Percentages for Cumulatives
- Percentage Cumulative Consumption Rate: For each product, divide its cumulative consumption rate by the total cumulative consumption rate of all products and multiply by 100 to get a percentage.
- Percentage Cumulative Average Stay: For each product, divide its cumulative average stay by the total cumulative average stay of all products and multiply by 100 to get a percentage.
Rank Products Based on Percentages
- Create Two Lists:
- One list should rank all products based on their percentage cumulative consumption rates from highest to lowest.
- The other list should rank all products based on their percentage cumulative average stays from highest to lowest.
- Classify Each Product:
- From the consumption rate list, classify the top 70% as fast-moving items, the next 20% as slow-moving items, and the bottom 10% as non-moving items.
- From the average stay list, classify the top 70% as non-moving items, the middle 20% as slow-moving items, and the bottom 10% as fast-moving items.
Combine Rankings for Final Classification
Cross-reference both lists to determine each product’s final classification based on its rankings in both categories. See this table below as reference:
| Consumption Rate Ranking | Average Stay Ranking | Final Ranking |
| F | F | F |
| F | S | F |
| F | N | S |
| S | F | S |
| S | S | S |
| S | N | N |
| N | F | N |
| N | S | N |
| N | N | N |
Should You Really Use FSN Analysis?
Pros:
- Reduces holding costs by minimizing non-moving inventory.
- Enhances cash flow by prioritizing high-turnover items.
- Improves operational efficiency with better stock planning.
Cons:
- Requires accurate, up-to-date data for meaningful insights.
- Manual calculations can be time-consuming.
- Doesn’t factor in monetary value (unlike ABC analysis).
Despite the challenges, combining FSN with the right tools, such as Tag Samurai, solves these issues by ensuring data accuracy.
What Happens If You Skip This Analysis?
Neglecting FSN analysis can lead to costly inefficiencies, including:
- Overstocking non-moving items, increasing storage costs.
- Frequent stockouts of fast-moving items, leading to missed sales.
- Higher inventory write-offs due to obsolescence.
For example, a mid-sized retailer found that 15% of their stock was non-moving, costing them $50,000 annually in storage and depreciation (source: Retail Dive).
FSN vs. ABC Analysis
FSN and ABC analysis are both popular inventory management methods, each serving different purposes.
- FSN focuses on consumption rates, while ABC prioritizes items based on monetary value.
- FSN is better for operational decisions like replenishment planning, whereas ABC aids financial prioritization.
Depending on your business needs, combining FSN for operational efficiency with ABC for financial focus can offer a balanced approach to inventory management.
Also Read: Just-in-Time Inventory (JIT): Complete Explanation
Faster Ways to Perform FSN Analysis
Traditional FSN analysis can be tedious. Here’s how Tag Samurai simplifies the process:
- Real-Time Data Tracking: Automatically updates inventory tracking data using RFID technology, which reads and tracks multiple assets in seconds.
- Predictive Insights: Identifies trends to help you act before stock issues arise.
- Mobile App Access: Manage your inventory anywhere, eliminating the need for desktop-based systems.
With Tag Samurai, businesses save hours on manual calculations and make data-driven decisions faster.
Optimize Your Inventory Management!
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