First-In, First-Out
FIFOFirst-In, First-Out (FIFO) is an inventory management method where the first materials received are the first ones used in production or shipped.
First-In, First-Out (FIFO) is a system for organizing and rotating inventory. It ensures that the oldest stock is consumed before newer stock. This method is straightforward. The first items to arrive at the warehouse or production line are designated as the first to be picked for work orders or customer shipments.
On the shop floor, FIFO is implemented through physical organization. This can include gravity-fed racks where new items are loaded from the back and old items are picked from the front. Other methods involve using designated lanes or storage areas with clear entry and exit points. All inventory is typically labeled with a receiving date or lot number to maintain order.
FIFO is important for manufacturers dealing with perishable or date-sensitive materials. This includes food and beverage, pharmaceuticals, and chemicals. It prevents spoilage and waste. The method is also valuable for products with revision updates, like electronics, or materials that degrade over time. Using older stock first ensures consistent product quality and reduces the risk of obsolescence.
A plastics manufacturer receives a 1,000 kg batch of resin on May 10th. They receive another 1,000 kg batch on May 18th. When a work order for 500 kg of resin is issued on May 22nd, the operator pulls the material from the May 10th batch to ensure the oldest stock is used first.
What is the difference between FIFO and LIFO?
FIFO uses the oldest inventory first. LIFO (Last-In, First-Out) uses the newest inventory first. Most manufacturers prefer FIFO to avoid product expiration or obsolescence.
Is FIFO only for perishable goods?
No. It is also used for products with firmware versions, design changes, or materials that can degrade, like adhesives and coatings. This practice maintains product consistency.
How can a facility physically implement FIFO?
Common methods include using gravity-fed racks, roller conveyors, or two-door storage systems (load one side, pick from the other). Simple date labeling on pallets and bins also supports the process.
How does FIFO affect accounting and inventory valuation?
FIFO is an accounting method for valuing inventory. When material costs are rising, FIFO results in a lower cost of goods sold (COGS) and a higher ending inventory value.
Can software help manage a FIFO system?
Yes, an inventory management system or WMS can track lot numbers and receipt dates. The software directs workers to the specific location of the oldest stock for picking.
Last-In, First-Out
LIFOLast-In, First-Out (LIFO) is an inventory management method that assumes the last items added to stock are the first ones to be sold or used.
First Expired, First Out
FEFOFirst Expired, First Out is an inventory management method that prioritizes using materials with the earliest expiration date first.
Inventory Turnover Ratio
The inventory turnover ratio measures how many times a company sells and replaces its inventory over a specific period.
Warehouse Management System
WMSA Warehouse Management System (WMS) is software that directs and optimizes warehouse operations from receiving to shipping.
Stock Keeping Unit
SKUA Stock Keeping Unit (SKU) is a unique alphanumeric code assigned to a specific product variant to track inventory.