FSN combined with XYZ INVENTORY ANALYSIS: An aid to identifying deadstock to dispose
In any business, identifying the non-movable, deadstock and deciding on necessary actions, is a necessary task. But to confirm that this stock is actually non-movable and is supposed to be disposed of, variations in demand for such products should be evaluated. Non movable items can be identified using FSN analysis. Variability in demand can be identified using XYZ analysis.
Moreover for consumable FMCG-type products taking necessary actions before the expiry date arrives is of paramount importance.
The focus should not only be on the highest frequency consumable products or stock management of only products with high demand because these are not the only key points responsible for optimum revenue.
A business suffers an unexpectable loss, not only in terms of monetary, but also mismanagement in use of resources, human resources, time if it is unable to take necessary action on time for non-moveable products and also if now their demand is also not going to arise.
Thus the use of analytical inventory technologies which help identify such non-movable items and forecast their demand becomes mandatory. Obviously, as these items' movement is on hold no revenue is generated by these items.
FSN Analysis and XYZ analysis are solutions to such problems. This analysis separately is already been discussed in previous articles. The point of discussion here is - As a business expands, is this analysis implemented individually sufficient? How about combining this analysis to identify deadstock items and take necessary actions on them?
In this article, you will be able to understand the importance of XYZ with FSN classification and how it converts the loss that you were going to suffer into opportunity?
FSN analysis in Inventory Management helps to classify products into F, S, and N categories based on the consumption patterns of products.
Products Under
F category → consumption frequency of products in this category is highest.
S category → consumption frequency of products in this category is slow
N category → Products in this category are least consumed or generally headstock.
XYZ analysis in Inventory Management obviously gives businesses knowledge about the investment status of inventories
X category → Products under this category are critically important and require close monitoring and tight control.
Y category → Products under this category are of lower criticality requiring standard controls and periodic reviews of usage
Z category → Products in this category require the least control.
How about combining FSN analysis with XYZ analysis?
For analysis on both keen parameters movement of stock and simultaneously variability in demand of same products, FSN analysis combined with XYZ analysis facilitates such provision.
When XYZ is combined with FSN analysis, not only would a business be able to identify deadstock but can also provide knowledge about investment in inventories of such products.
The XYZ combined with FSN classification thus provides a framework for developing and refining inventory management strategies by not only classifying products according to their consumption rate (FSN analysis) but also according to their uncertainties (XYZ analysis). The procurement strategy will then be different based on this new classification to optimize stock and customer service rates.
Looking at this classification needs, the main purpose of XYZ with FSN analysis is
- Classify by movement => FSN Analysis
- Classify by Uncertainty => XYZ Analysis
Thus, FSN-XYZ analysis forms a matrix of nine categories. On one side products are categorized based on variability in demand using XYZ analysis, whereas on the other side, categorized based on FSN analysis. Thus, now we get products categorized into 2 dimensions.
Each product is now categorized as FX, FY, FZ, SX, SY, SZ, NX, NY, NZ
FSN XYZ matrix classifies products into 9 categories
Interpretation from FSN with XYZ analysis
From the figure above, the most important category of products under necessary actionable decisions is
- NX category :
- The products under this category define that there is no movement of this stock as it is coming under N category and stock value is also high as for XYZ analysis it is categorized to X category. Hence this indicates that your large amount of cost is stuck in deadstock. Thus you should take necessary action in removing such stock.
- FZ category :
- The products under this category define that there is a very fast movement of this stock as it is coming under F category but the stock value is low as for XYZ analysis it is categorized to Z category. Hence this indicates that items under this category’s movement are also very fast and stock value is also very less. Here as these products are under the fast-moving category, one should check that as it is defining stock valueless, it isn't so that stock is less and as it is under a fast-moving category, we face stock out.
Likewise, strategies can be planned for other matrices also.
- The products under this category define that there is a very fast movement of this stock as it is coming under F category but the stock value is low as for XYZ analysis it is categorized to Z category. Hence this indicates that items under this category’s movement are also very fast and stock value is also very less. Here as these products are under the fast-moving category, one should check that as it is defining stock valueless, it isn't so that stock is less and as it is under a fast-moving category, we face stock out.
Hence we conclude that when products are classified using FSN XYZ inventory analysis, for each product in our catalog we now know what the stock value of each product is and also the movement of each product?
Thus we can say that this analysis helps to make a decision of the stock whether its storage has actually blocked your primary amount or it is necessary based on its movement?
“Manages between critical stock-outs and Minimizing Inventory cost”
All this discussion proves that there is a requirement for designing and implementing inventory technology software management, which classifies products using automated processes. Advance Inventory Reports provides such functionality that not only facilitates combined FSN XYZ analysis but also XYZ analysis, FSN analysis, Turnover analysis, Inventory aging, out of stock, overstock, and stock rotation integrated into one solution where analysis can be performed based on the user's choice.
Benefits of FSN XYZ analysis
- XYZ analysis when combined with FSN analysis helps formulate more specific strategies
- FSN-XYZ combined analysis helps identify a dead stock or dead investment
- FSN-XYZ combined analysis clarifies service levels for items with volatile demand
- Helps reduce stock obsolescence
- Helps improve the accuracy of forecasting
- Reduces stock-outs and thus improves production stability and efficiency, customer satisfaction
- It provides direction to identify products to be disposed of and thus save the company's capital and also resources.
Knowing the importance and benefits of ABC XYZ analysis, implementing this analysis in any business is evident, but knowledge of using this analysis efficiently is a must.
Concluding Point
As a business expands, managing inventory costs becomes most important, but which products also becomes a point of discussion. FSN-XYZ analysis not only helps to identify dead stock but also helps to analyze and make a decision that investing in which category products does not become risky. Also for fast-moving products-less stock value, the stock value should be under an analysis process where the quantity of products is less or products are more in number but the price is less which is resulting in less stock value, as we should not face out-of-stock situations for fast-moving products.
This is one of many Inventory management techniques. Choose wisely based on requirements in your business.