## ABC Analysis and FSN Classification
### Advantages of ABC Analysis
ABC analysis classifies inventory by value so that control effort is concentrated where it matters most.
- Continuity in production — smooth production with minimum inventory investment, avoiding stockouts.
- Lower cost — reduces ordering, receiving and storing costs, especially when combined with EOQ.
- Less attention required — management focuses on high-value A-class items instead of monitoring every item equally.
- Systematic working — routine, organised purchasing that subordinate staff can handle efficiently.
### FSN Inventory Classification
Also called the FNS (Fast, Normal, Slow) system, FSN classifies items by usage frequency and inventory turnover.
| Category | Meaning | Storage & Action |
|---|---|---|
| Fast Moving | High usage frequency | Kept near the issue point; stock reviewed and replenished frequently |
| Slow Moving | Occasional usage | Stored further away; reviewed periodically for obsolescence; may shift to non-moving |
| Non-Moving | No recent usage | Kept for disposal; reported to management; provision for loss may be created |
### Reasons for Slow & Non-Moving Inventory
- Lack of communication — production fails to pass updated material needs to the store.
- Technological upgradation — new machines/processes make existing materials obsolete.
- No periodic review — irregular review lets outdated items accumulate.
### How to Manage Slow & Non-Moving Inventory
- Timely identification through regular monitoring.
- Inventory turnover ratio — compare actual vs standard turnover to spot inefficiency.
- Minimum level / JIT control to cut excess stock.
- Management reporting — present variance reports for better decisions.