An inventory analysis is vital for the smooth running of the entire business operations. It entails understanding the availability of business products in relation to the demand for specific products.
Having a sound inventory control is something all businesses must strive to acquire, as it puts them in a position where they can maximize their products in relation to consumer demands. It is essential for businesses to practice regular inventory analysis so as to gain proper inventory control.
One of the critical roles of inventory analysis in any business setting is that it helps to make decision making easier, most notably in regards to protecting vital assets. Furthermore, the combination of products classification and inventory analysis can help improve an organization’s inventory control.
More importantly, a proper inventory analysis enables businesses to achieve a good Return on Investment (ROI).
So, how does a business carry out its inventory analysis?
Well, this is where top inventory techniques such as FSN Analysis, VED Analysis, and SDE Analysis come into play.
This analysis deals with the availability of an item in the market. It depicts whether a particular material is scarce or readily available. SDE Analysis is highly beneficial in a market environment where certain items are not readily available. In such situations, it offers the right guide in choosing inventory policies in relation to material availability. The inventory is classified in the following way
- Scarce (S): This generally refers to materials that are in short supply (i.e. scarce). Materials that usually fall into this category include; imported materials, raw materials, and spare parts.
- Difficult (D): This signifies materials that are not easily found in the market or would have to be gotten from a far place. It also refers to materials with limited suppliers.
- Easy (E): This generally refers to materials that can easily be found in the market
VED analysis in inventory management deals with the classification of materials based on their importance to other materials.
- Vital (V): These are essential materials whose non-availability while putting a halt to business operation. These materials need to be in stock at all times else, production will be affected.
- Essential (E): This refers to materials that you require a certain amount of. You just require a minimum amount of them to keep production active.
- Desirable (D): This refers to materials that do not really affect production. Production can run with or without these materials
FSN analysis in inventory management deals with the classification of items based on usage, consumption rate, and quantity.
- Fast Moving (F): This refers to materials that have a high usage frequency
- Slow Moving (S): This refers to materials that have a slow usage frequency
- Non-Moving (N): This refers to materials that are only utilized for a specific duration