Fast-Moving, Slow-Moving and Non-Moving

Inventory (FSN technique)

Fast-moving, Slow-moving and Non-moving inventory (FSN technique)

Introduction
What is Fast - Moving, Slow - Moving and Non - Moving Inventory Management Technique
How to Identify the FSN Inventory - FSN Analysis
Why You Should Use FSN Analysis Technique - Advantages
Disadvantages
Conclusion
Introduction
Black Champion U. Miller has explained the term ‘Inventory’ as “expandable physical
articles held for resale, for use in manufacturing a product or for consumption in
carrying on business activity”

Industries in the modern world are facing extreme pressure as the trends and likings of
consumers change even before they are able to predict it. Inventory and warehouse
managers need to respond proactively as the trends change in fact they are needed to be
a step ahead of the consumer.

Although it is a bitter truth, it’s true that the industry with good demand forecasting and
inventory management techniques can any day overtake a company with better quality
products but having flawed demand forecasting abilities.

Inventory management’s goal is to increase profits and performance of the entire supply
chain and order fulfillment process by articulately forecasting demand, reducing
inventory carrying cost, managing quality, and increasing the value of the inventory.
Moreover, they should ensure that the products inside are the ones that would generate
profits.

Online or offline retailers will never invest money in holding an inventory that doesn’t
bring in revenues frequently. And therefore, you need to analyze the movements and
functioning of products through the supply chain and order fulfillment process.

In this write-up, I will be discussing one such inventory analysis technique called the
FSN technique that helps you identify the fast-moving, slow-moving, and non-moving
products. So if you want to know how to do, FSN analysis read on-

What is Fast - Moving, Slow - Moving and Non -

Moving Inventory Management Technique

Also known as the FSN analysis, Fast moving, the slow-moving and non-moving
inventory method is about segregating products based on their consumption rate,
quantity, and the rate at which the inventory is used.
Fast-moving inventory, as the name suggests, comprises the stock that moves quickly
and needs to be replenished very often. Generally, the stock that lies in this category has
an inventory turnover ratio of more than 3 and constitutes around 10-15% of the total
inventory.

Slow-moving inventory is the inventory that crawls slowly through the supply chain and
has an inventory turnover ratio between 1-3. It is generally 30-35% of the total stock.

The inventory that rarely moves with the inventory turnover ratio below 1 and makes
60-65% of the total stock is called the Non-moving inventory.
How to Identify the FSN Inventory - FSN Analysis
Inventory can be classified based on different parameters like consumption rate,
average stay, annual demand percentage, reorder frequency, and how repeatedly the
products are used or moved from their location.

To figure out which product falls under which category you need to calculate the
parameters mentioned above, like average stay and consumption rate during a period.
The formula for the average stay and consumption rate is -
Average stay = cumulative no. of inventory holding days [or unit of time] ÷ (total
quantity of items received + opening balance)

Consumption rate = Total issue quantity ÷ Total period duration

After the calculation of the average stay and consumption rate is done, then the
calculation of cumulative average stay and cumulative consumption rate is carried out,
followed by deriving the percentages of both. And then, with the help of these
percentages, we can identify and segregate the products into FS & N.

Cumulative average stay = average stay of item + average stays of all items that stay
longer in inventory than itself

Cumulative consumption rate = consumption rate of item + consumption rate of all

items consumed faster than itself

Percentage average stay = (cumulative average stay of item ÷ cumulative average

stay of all items) x 100

Percentage consumption rate = (cumulative consumption rate of item ÷ cumulative

consumption rate of all items) x 100

According to cumulative average stays -

● Fast-moving products are 10% or less of the average cumulative stay.

● Slow-moving stocks are 20% of the average cumulative stay.
● Non- moving items constitute around 70% of the average cumulative stay.

This means that the fast-moving products stay only 10% or less of the average stay of the
inventory and hence travels quickly through the supply chain.

According to consumption rates the FSN can be categorized as -

● Fast-moving inventory is 70% of the average consumption rate

● Slow-moving inventory is 20% of the average consumption rate
● Non-moving inventory is 10% or less of the average consumption rate.
The consumption rate of the F products will always be high because of the apparent
reason that they are sold quickly and have a higher inventory turnover ratio.

To make sure that FSN analysis is accurate, you need to take both averages stays in
inventory and consumption rate of the products into account. This determines the final
FSN status of the stock based on which you make decisions for your inventory
management and inventory forecasting.

Let’s take an example to understand how the calculation is done.

Let’s carry out the analysis for ten materials, and the time duration to be for 10 days.
Below is the calculation of the item with SKU01.

Opening balance - 40

Date Receipt Issue Return Adjustment Closing Inventory

quantity quantity quantity quantity balance holding
days

01/1/2020 10 05 00 00 45 45

02/1/2020 00 05 00 00 40 85

03/1/2020 15 00 05 00 60 145

04/1/2020 00 10 00 00 50 195

05/1/2020 20 05 00 00 65 260

06/1/2020 10 00 00 00 75 335

07/1/2020 00 20 00 00 55 385

08/1/2020 20 10 00 00 65 450

09/1/2020 10 00 00 00 75 525

10/1/2020 00 10 00 +6 71 596

Total 85 65 05 6+
Now,

The average stay of the material = ​ ​cumulative no. of inventory holding days [or unit of
time] ÷ (total quantity of items received + opening balance)

So, the Average stay of the material is = 596/125

= 4.76 days

We also have to calculate the consumption rate which

Consumption rate of the material = Total issue quantity ÷ Total period duration
= 65/10
= 6.5 Nos/ day

The next step would be listing down of all the 10 materials with their average stays and
consumption rates

Item code Average Stay Consumption Rate

01 4.76 6.5

02 6.5 4.2

03 8 3

04 3.63 7

05 7.69 5.23

06 10 1.23

07 12.45 2.5

08 6.76 5.64

09 9.6 3.39

10 5.14 7.86
Now classifying the products on the basis of cumulative average stay percentage by
arranging them in descending order with the highest number of average stay on the top.

F= 10% or less
S = 20%
N = 70%

Item Code Average Stay Cumulative avg % average stay FSN

stay classification

07 12.45 12.45 16.704 N

06 10 22.45 30.12 N

09 9.6 32.05 43.00 N

03 8 40.05 53.73 N

05 7.69 47.74 64.054 N

08 6.76 54.5 73.12 S

02 6.5 61 81.84 S

10 5.14 66.14 88.74 S

01 4.76 70.9 95.12 F

04 3.63 74.53 100 F

*This graph is for demonstration purposes only, generally in average stay ,the F = 10%, S = 20%, N = 70%

Similarly, the subsequent step is to classify the inventory concerning the consumption
rate.

Item Code Consumption Cumulative % FSN

Rate consumption Consumption Classification
rate rate

10 7.86 7.86 16.88 F

04 7 14.86 31.92 F

01 6.5 21.36 45.89 F

08 5.64 27 58.00 F

05 5.23 32.23 69.23 F

02 4.2 36.43 78.25 F

 09 3.39 39.82 85.54 S

03 3 42.82 91.98 S

07 2.5 45.32 97.35 N

06 1.23 46.55 100 N

*This graph is for demonstration purposes only, generally in consumption rate ,the F = 70%, S = 20%, N =
10%

The final classification is conducted by combining both of the results of segregation

achieved above.

Item Code FSN (consumption FSN (Average stay) Final FSN

rate) classification

01 F F F

02 F S F
 03 S N S

04 F F F

05 F N S

06 N N N

07 N N N

08 F S S

09 S N N

10 F S F

*This graph is for demonstration purposes only.

Why You Should Use FSN Analysis Technique -

Advantages
As you saw in the above example, you can calculate the average time spent by a product
in the warehouse and the consumption rate, and this data can help you a lot in
managing your inventory efficiently. Below is the list of reasons explaining the
importance of the FSN technique.

● An easy way to find dead stock and reduce its accumulation in the inventory
● An effective way to categorize inventory in a way that the categories in which the
products are kept say a lot about the behavior of the product in a supply chain
● The technique also empowers the retailers to decide on the future of the business
of each product, whether to increase the purchase of a particular product or to
not
● A fantastic technique to find the active products in the inventory and also if you
carry the analysis regularly you can see the trends shifting from one product to
another
● This information about changing patterns can help you in handling those
products and keeping the inventory updated
● The products that don’t need to spend money on are easily spotted
● Getting rid of the non-moving products at the correct time to avoid the inventory
carrying cost, and replace those products with the products that bring in the
profits also becomes uncomplicated as you know the products that aren’t doing
well
● This also enables you to keep fast-moving products at the location in the
warehouse that is more accessible

Disadvantages

The major disadvantage of this technique is that it is a calculation that is based on

formulas and information provided by you, so the issue is the information, or even a
single human error can flaw the calculations.

This can lead to wrong analysis, and you are managing your inventory based on that
faulty outcome. You could consider a slow-moving product as a fast-moving product and
tell your supplier to send more of it. However, then you realize there isn’t much demand
for that product. So, there is a loophole in this technique.

Also, sudden changing trends in the inventory are very tough to figure out with this
technique alone as you have to calculate again and again.

To know about FNS analysis through a video watch the below-given youtube
video
https://www.youtube.com/watch?v=tUa4FgeC7u8

Conclusion

If you want to segregate the inventory and figure out the demand or movement of
products, this is one of the best techniques; however, the companies use a combination
of ABC analysis, FSN analysis, and VED to classify their products depending on their
needs.

I hope you can learn the FNS analysis technique from the above-given information.
There are many advantages of this method, like a better understanding of the product’s
motion and conduct so that you can forecast your inventory effectively and decrease
inventory carrying costs and increase the bottom line.
Properly using this method can take you ahead of your competitors in a whisker.

However, don’t forget the disadvantages as a small error can lead to a misunderstanding
that can cost you money and time both. Also, going out of stock can lead to consumers
getting diverted to your competitors.

And at last, here’s a tip that I want to give you. Use an inventory management software
that can spare you from the efforts of classifying the inventory and keeping track of it
manually. Take a ​15 day free trial​ of an automated inventory management software to
see if you like it or not.

“Non moving inventory is like a mole in a business that does nothing yet does a job of
increasing your inventory carrying cost, decreasing your bottom line and devaluing
your invested money”

Essential Resources
● https://mywestford.com/blog/fsn-analysis-in-inventory-management/
● https://www.ginesys.in/blog/how-identify-fast-moving-and-slow-moving-stock-0
● https://esbfedu.com/blog/top-inventory-management-tools-and-techniques/
● https://www.ijraset.com/fileserve.php?FID=6196
● http://knowscm.blogspot.com/2008/04/how-to-do-fsn-analysis.html