Studies show that companies can gain a 25% increase in productivity and 20% & 30% optimization in space and stock usage with the right inventory control method. One effective inventory management method used by several critical industries, including the cement industry, is the FSN (Fast-moving, Slow-moving, Non-moving) analysis technique.
It helps classify the inventory items based on their market reach, trends, and consumption patterns. Cement manufacturers rely heavily on FSN analysis to efficiently manage raw materials, spare parts, and finished goods. Breakthrough of inventories into Fast-moving, Slow-moving, and Non-moving categories, businesses can optimize stock levels, reduce holding costs, and enhance procurement strategies.
What is FSN analysis?
FSN analysis in inventory management stands for Fast-moving, Slow-moving, and Non-moving analysis techniques to prioritize the stock based on its movement in the market. Many manufacturing industries, including cement, use this method to find how often their stocks are sold and stay back in the inventory. The classifications of goods are based on:
Fast-moving: Stocks are released from the inventory quickly without staying for a long time and have a high turnover rate.
Slow-moving: Stocks stay longer and slowly move from the inventory over a certain period.
Non-moving: Stocks hardly or not released from the inventory over a certain period.
These flows of goods from the inventory are measured by 3 parameters:
Consumption rate: Refers to how often materials are consumed during a specific period.
Consumption rate = Total number of issued goods / Total period
Average stay in inventory: Refers to the time duration of a specific item staying in the inventory.
Average stay = cumulative number of inventory holding days [or unit of time] ÷ (total quantity of items received + opening balance)
Period of analysis: Refers to the time when the analysis is conducted.
A checklist for how to conduct an FSN analysis in inventory management
Collecting and preparing inventory data
- Make a detailed list of inventory items from raw materials such as clay, gypsum, and limestone to packed finished goods.
- Enlist every individual item’s information, such as material code, description, unit pricing, annual sales rate, and consumption quantity.
- Organize the data into a standard format for accuracy and consistency.
Analysis and Classification
- Based on the annual utilization, arrange the inventory items in descending order.
- Classify the Fast-moving, slow-moving, and Non-moving items based on their annual demand percentage and inventory retention period.
Calculations
- Calculate consumption value (Consumption Value = Quantity Consumed × Unit Cost).
- Calculate each product’s inventory storage stay and consumption rate.
- Use other indicators, such as demand, safety stock, reorder point (the phase when items are replenished), inventory review time, and inventory classification, for in-depth FSN analysis.
Examinations and Inspections
- Conduct periodical audits to check out overstock and stockouts.
- Review them with the 3 main parameters (FSN) goods.
Apply Inventory Enhancement Strategies
- Set reorder points for Fast-moving goods.
- Develop a buying plan for Slow-moving goods.
- Set clearance and repurposing actions for Non-moving goods.
Reports
- Share the results from the inventory FSN analysis with the production, procurement, and finance departments.
- Conduct monthly or quarterly review cycles for regular updates.
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How to Calculate FSN Analysis?
To find out the product categorization based on its market move, the industry needs to calculate the consumption rate of a product and the product’s average stay in inventory.
Step 1
The consumption rate measures how fast an item is used or distributed over a certain period.
- Consumption rate = Total number of issued goods / Total period
Average stay measures how long an item stays in inventory before it is used or distributed.
- Average stay = cumulative number of inventory holding days [or unit of time] ÷ (total quantity of items received + opening balance)
Step 2
After these calculations, you’ll need to calculate the cumulative consumption rate and cumulative average stay for each item.
The cumulative consumption rate is the consumption rate of an item plus the consumption rates of all items that are consumed faster than it. It helps to compare the usage speed of items.
- Cumulative consumption rate = consumption rate of item + consumption rate of all items consumed faster than itself
Cumulative average stay is the average stay of an item plus the average stays of all items that stay longer in inventory than it. This gives a cumulative measure of how long an item remains in inventory compared to others.
- Cumulative average stay = average stay of item + average stays of all items that stay longer in inventory than itself
To find the percentage of cumulative consumption rate and cumulative average stay
- Percentage cumulative consumption rate = (Cumulative consumption rate of item / Cumulative consumption rate of all items) x 100
- Percentage cumulative average stay = (Cumulative average stay of item / Cumulative average stay of all items) x 100
From the above calculations, organizations can allot the inventories based on their criteria, such as Fast, Slow, and Non-moving items. The consumption rate above 50-60% comes under Fast-moving, 20-30% for Slow-moving, and 10-20% for Non-moving goods.
Advantages of an FSN analysis
Efficient Inventory Control
The categorization of F, S, and N goods helps inventory managers clear up extra space held by unwanted materials. It helps them to optimize their warehouse by maintaining overstocks and understocks.
This also results in reducing investments spent on unnecessary material purchases, storage space, and manpower.
Advanced Procurement Planning
Organizations can better plan their procurement of materials or goods based on trends and patterns predicted by the FSN analysis. It saves the cost and time spent on unnecessary purchases.
Improved Cash Flow
Through FSN analysis, industries can set effective profit margins for fast-moving goods and reduce the capital tying up with the Slow-moving and Non-moving items. It streamlines the seamless flow of cash and increases the profitability.
Informed Decision-Making
The FSN analysis report gives insightful data for informed inventory management decisions. The research identifies which items sell well and which do not, allowing firms to tailor their strategies accordingly.
Cost Reduction
By focusing on Fast-moving items, companies can reduce or avoid unnecessary carrying costs spent on Slow-moving and Non-moving goods.
Disadvantages of FSN analysis
Rapid Market Changes
Continuous market changes and customers buying behavior might create complexity in predictions and affect the accuracy in FSN analysis.
Dependency on Formulas and Information
FSN analyses are completely dependent on the formulas and the information fed by the inventory managers. If any error occurs in both elements, then the entire report gets faulty.
Time-Consuming
An effective FSN analysis requires more time and skilled expertise for calculations and audits.
How FSN analysis can help identify non-moving inventory and optimize storage in the cement industry
Non-moving goods or materials, such as rarely used chemical additives, old spare parts, excess or limited stocks made by inaccurate demand predictions, damaged cement bags, and more in the cement industries are identified by practicing FSN analysis.
This analysis strengthens procurement planning by purchasing the most demanded and preferable materials based on the current trends and optimizing inventory by securing and prioritizing storage space for Fast-moving goods, which directly leads to cost savings.
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Wrapping Thoughts
Implementing FSN analysis helps businesses optimize inventory, reduce costs, and streamline operations. By leveraging advanced tools like Prosol from Codasol, companies can enhance their inventory management processes and improve overall profitability.
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