These acronyms always confuse clients when we first use them, so this handy article will explain what FIFO and FEFO mean, how they work and what the benefits are. These are inventory management principles that support the flow of goods through warehouses. They ensure proper stock rotation, which is vital for storing perishable goods such as food and beverages, pharmaceuticals and chemical stock.
What is FIFO?
FIFO: First In, First Out
In FIFO systems, the first products stored are the first to be retrieved from storage. This is the most robust system for effective stock rotation, requiring strict organisation during put-away. Products are arranged chronologically to make certain the oldest stock is the first picked to fill orders.
During put-away, newer items are stored behind older ones. Many warehouses use dynamic flow shelving to streamline this, loading from one side and picking from the other to make sure the delivery order is maintained.
One disadvantage is that stock does not always arrive in the same order as it is produced. Expiry dates of some stock can be shorter than the stock due to leave first in some cases, leading to wastage.
What is FEFO?
FEFO: First Expire, First Out
FEFO systems are similar to FIFO but account for the occasional discrepancies in expiry dates. In this system, the product which expires soonest is kept at the front, regardless of when it was received into stock. This ensures that those with the shortest shelf life enter the market first, making sure customers receive stock with a reasonable usable life remaining. It also allows businesses to reduce wastage overheads.
The disadvantage of the FEFO principle is that it takes longer to implement, as put-away requires checking expiry dates and re-arranging if they are inconsistent with previous orders.
What is LIFO?
LIFO: Last In, First Out
LIFO is the opposite of FIFO: the last product on the shelf is the first to leave. LIFO doesn’t require any special shelving systems or date checking and is often thought of as faster and easier than other methods.
LIFO is not often used, as most companies would not leave older inventory sitting idle while cycling through new stock as it arrives. In e-commerce fulfilment centres, orders can be picked directly from deliveries without stock ever reaching the racks, which saves a number of steps in the process. These cases tend not to have perishable stock and value speed highly, so LIFO makes sense here.
LIFO also doesn’t provide an up-to-date inventory value, as the cost of goods sold (COGS) is subject to inflation. With older goods sitting idle on the shelf, the COGS may overestimate the value of remaining inventory items, leading to lower net income records.
How a Warehouse Management System Improves FIFO and FEFO Processes
When managing hundreds of thousands of goods every day, large warehouses create efficiencies with computer integration, in the form of a warehouse management system (WMS). This is a system of scanners and databases that logs every item of stock and creates rules for order picking, among other processes.
A well-programmed WMS can create dynamic rules for stock rotation, automating FIFO and FEFO based on product categories. For food warehousing, this is extremely useful. The WMS can automatically enforce these rules during order picking, scanning items to check if they are those with the soonest expiry.
WMS can also track batches and expiry dates to create automated alerts for inventory that will expire soon. By automating picking priority with smart WMS software, we can also isolate expired products to prevent accidental dispatch.
How LTS Chooses the Right Process for You
At LTS Global Solutions, our warehouses house goods and materials for multiple businesses as part of our logistics service. Because of the impact on COGS calculations, we use FIFO principles for most stock, unless you ask us otherwise, so our clients have the most accurate projections and revenue data. We won’t keep old stock sitting idle, even if it is shelf-stable, unless there is a business case for sending new stock out first, such as in rapid e-commerce fulfilment.
For perishable goods such as medicines, food and chemical products, our WMS informs and enforces strict FEFO protocols to make sure everything leaves the warehouse with plenty of shelf life remaining.
Warehousing at LTS Global Solutions
No matter what you’re storing, we can provide warehousing solutions that minimise wastage and keep your stock secure, including ambient storage, pallet storage and food warehousing.
Build your business with support from LTS Global Solutions. Our warehousing and logistics services are built on a foundation of experience and supported by improved software. We support businesses of all sizes, with tailored services to suit every budget. You don’t have to wait for a space: our warehouses are agile enough to get things moving quickly.
Our customers feel confident that their stock is safely stored and transported with us, with our BRCGS accreditation and friendly customer service. You can streamline your logistics with LTS too, simply email info@ltsglobalsolutions.com, phone us on 0121 753 0080 or fill in our easy contact form.
