International Journal of Research e-ISSN: 2348-6848

Available at https://edupediapublications.org/journals p-ISSN: 2348-795X

Volume 05 Issue 12
April 2018

An Inventory Control using ABC Analysis and FSN Analysis

Pankaj Potphode, Ankit Chandrakar, Miss. Supriya Kabra
DEPARTMENT OF MECHANICAL ENGINEERING
SHRI SHANKARACHARYA INSTITUTE OF PROFESSIONAL MANAGEMENT AND
TECHNOLOGY
Abstract: To achieve optimum inventory II. Literature Review
replenishment is significantly difficult due inherent Inventory management is the accurate tracking of all
uncertainties in demands and supply which resulting materials in the company’s inventory. The company
in loss of sales or keeping excessive inventories. An has purchased these items from another supplier.
unkempt inventory can take up to one-third of an There are three possible areas of loss that are
organization’s annual investment. Therefore, in reduced through effective inventory management:
order to compete with invariably erratic demands, it shrinkage, misplacement, and short shipments.
is not only challenging to develop an intelligent There are various types of inventory control analysis
system to maintain and control an optimum level of techniques. Here we shall focus on the ABC
inventory but has also become mandatory. Here we analysis. It is possible to utilize the concept of ABC
have tried to study the inventory control system of a model in formation of rational inventory policy
manufacturing industry using ABC and FSN. which should give the best possible service level to
Keywords: ABC analysis, inventory control, annual production while minimizing investment costs. ABC
investment, FSN analysis. analysis tends to measure the significance of each
item of inventory in terms of value. According to
Onwubolu and Dube (2006), when ABC analysis is
I. Introduction applied to an inventory situation, it shows the
Inventory management is significant for effective importance of items and level of control placed on
and efficient organization. It is also important in the the items.
control of inventories that have to be stored for later ABC classification is a method of classifying
use in case of production. The goal of inventory inventory items according to the money value to a
management involves having to balance the firm. Class ‘A’ items normally range from 10% to
conflicting economics of not wanting to hold too 15% of all inventory items and account for between
much stock. 70% and 75% of total annual consumption value.
Inventory management is the activity involved in The class ‘B’ items normally range from 15% to
developing and managing the inventory levels of 20% of all inventory items and account for 20% of
raw materials, semi-finished materials (work-in- total annual consumption value. The Class ‘C’ items
process) and finished goods so that adequate normally constitute 70% to 75% of all inventory
supplies are available and the costs of over or under items and account for 5% to 10% of total annual
stocks are low. consumption value.
The studied Company is a public sector wheel Steps for implementation of ABC analysis are:
manufacturing company. It is observed that more 1. Prepare the list of items and estimate their
parts damage and reduced company’s revenue. It annual consumption (units).
was also observed that company does not always 2. Determine unit price (or cost) of each item.
adopt inventory optimization model to evaluate their 3. Multiply each annual consumption by its
inventory using raw materials as a parameter for unit price (or cost) to obtain its annual
measurement. This paper intends to discuss the consumption in rupees (annual usage).
inventory control technique for a manufacturing 4. Arrange items in the descending order of
company by using the ABC analysis to promote a their annual usage starting with the highest
better material management policy that would affect annual usage down to the smallest usage.
the company’s profit. 5. Calculate cumulative annual usages and
Following are the objectives of this research-: express the same as cumulative usage
a) To study and understand inventory control percentages. Also express the number of
techniques in industry. items into cumulative item percentages.
b) To determine whether or not inventory 6. Graph cumulative usage percentages
management in company, can be evaluated and against cumulative item percentages and
understood using ABCanalysis in inventory segregate the items into A, B and C
management. categories.

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 International Journal of Research e-ISSN: 2348-6848
Available at https://edupediapublications.org/journals p-ISSN: 2348-795X
Volume 05 Issue 12
April 2018

7. To separate items into A, B and C III. Research Methodology

categories, first few items which contribute Research methodology represents the strategies
between 70% –75% of cumulative usage involved in collecting and analyzing data. This
can be considered as A category, next few section attempts to give a direction and manner for
items which together with A category items research work. This includes the mode of data
segregated earlier contribute between 80% collection, analysis and the research design.
– 90% of cumulative usage can be
considered B category, and left over items A. Case Study Strategy:
can be taken as C category. Robson (2002) defines case study as a strategy for
doing research which involves an empirical
Advantages of ABC Analysis investigation of a particular contemporary
a) It ensures a closer and a more strict control over phenomenon within its real life context using
such items, which have high investment. multiple sources of evidence.
b) It releases working capital, which would For research project, current situation of inventory
otherwise have been locked up for a more management in company was investigated by using
profitable channel of investment. multiple sources of evidence, for instance, the
c) It reduces inventory-carrying cost. interviews with the manager and other related staff
d) It enables the relaxation of control for the ‘C’ of the company. Direct observation on inventory
items and thus makes it possible for a sufficient operation was also conducted. Case study approach
buffer stock to be created. was used to conduct the research project. Single-
A. FSN Analysis: case study strategy helped to understand the research
Classification based on Frequency of Issues/Use: context and acquire deep understanding about
F, S & N stand for fast moving, slow moving and specific management issues.
Normal moving items. This form of classification
identifies the items frequently issued, less frequently B. Methods of Data collection:
issued for use and the items which are not issued for Primary and secondary sources provided essential
longer period. This classification helps spare parts information for this research work. These sources
management in establishing most suitable stores include:
layout by locating all the fast moving items near the 1. Interview with some key personnel in the
dispensing window to reduce the handling efforts. stores, purchasing, production and
Also, attention of the management is focused on the inventory departments of the company.
Non-Moving items to enable decision as to whether 2. Record analysis of relevant data was
they are required in the future or they can be obtained from the annual reports, product
salvaged. Experience shows that many industries catalogue, sales reports, purchasing reports
which are more than 15 years old have more of the company and the related journals.
than50% of the stock as non-moving spares. Even if 3. Theoretical background information was
a few of them are disposed off and the locked up gathered through review of related
capital is made available, it will make available literature on ABC-model.
additional working capital to the organization. 4. E-mails were also used to send out
Action for disposal should be taken based on the questions and get responses.
value of each item of spare.

Balance) =1161/115 =10.09 Days

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 International Journal of Research e-ISSN: 2348-6848
Available at https://edupediapublications.org/journals p-ISSN: 2348-795X
Volume 05 Issue 12
April 2018

Consumption Rate = Total Issue Qty/Total Period Duration =46/15 =3.06 Nos/Day
Now list down the materials with average stay and consumption rate
Item Code Average stay Consumption rate
A 10.09 3.06

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 International Journal of Research e-ISSN: 2348-6848
Available at https://edupediapublications.org/journals p-ISSN: 2348-795X
Volume 05 Issue 12
April 2018

B 7.5 5.2
C 8.23 4.71
D 4.2 2
E 6 5.1
F 12 5.76
G 8 3.98
H 9.11 4.48
I 11.2 5.23
J 7.21 4
Every company has its policy for defining FSN. Here FSN has been taken as F-10%, S-20%, and N -70%.
Item Code Average stay Cum. Average stay % Average stay FSN Classification
F 12 12 14.34 N
I 11.2 23.2 27.77 N
A 10.9 33.29 39.85 N
H 9.11 42.4 50.75 N
C 8.23 50.63 60.61 N
B 7.5 66.13 79.16 S
J 7.21 73.34 87.79 S
E 6 79.34 94.97 F
D 4.2 83.54 100 F

FSN classification only on the basis of consumption rate:

Item Code Consumption rate Cum. Consumption % Consumption FSN Classification
rate rate
F 5.76 5.76 13.24 F
I 5.23 10.99 25.25 F
B 5.2 16.19 37.2 F
E 5.1 21.29 48.92 F
C 4.71 26 59.74 F
H 4.48 30.48 70 F
J 4 34.48 79.23 S
G 3.98 38.46 88.37 S
D 3.06 41.52 95.4 N
A 2 43.52 100 N

*Due to non-disclosure clauses the name of materials considered for FSN analysis can’t be disclosed.

IV. Findings items are those which moves slowly constitute 20%
Our analysis shows that the ABC analysis is of total components and N items are those which
followed by wheel manufacturing company and don’t move (Non-moving items) constitute 20%.
there is relation between annual demand and total V. Conclusion
costs of the materials. Inventory analysis and control has become
As compare to ABC analysis, FSN works with usage inevitable for a manufacturing industry. In order to
rate and ABC works with annual consumption value. refrain from having an inventory go dead it is of
As per the importance of materials in production utmost importance to stay abreast with the number
ABC and FSN are used. FSN techniques and condition of items in that particular inventory.
significantly reduces unnecessary motions while In this regard both periodic and continuous
issuing materials if they are arranged accordingly. techniques can be used for appraising the stats of the
From the classification F items on the basis stocks. Once the figures are accurately determined it
consumption rate F items are those which moves is yet again very important to be able to further
fastly and constitutes 60% of total components. S determine the level at which a particular item’s stock
needs to be maintained. For which calculations and

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 International Journal of Research e-ISSN: 2348-6848
Available at https://edupediapublications.org/journals p-ISSN: 2348-795X
Volume 05 Issue 12
April 2018

analysis are mandatory. The case study discusses

ABC analysis methods of inventory control analysis
of a wheel manufacturing industry. From the above
study we have found that the priorities of the items
changes according to different inventory analysis
techniques.
References
[1] IJREAT International Journal of
Research in Engineering &
Advanced Technology, Volume 1,
Issue 5, Oct-Nov, 2013 ISSN: 2320
– 8791.
[2] Operations management- theory
and practices second edition by B.
Mahadevan.
[3] Cecil Bozarth and Robert
Handfield, “Introduction to
Operations and Supply Chain
Management,” Prentice-Hall, 2006.
ISBN 0139446206.

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