FIFO (First In First Out) simple explained

The FIFO method or FIFO principle is used to evaluate the stock or inventory. Because goods are consumed in a certain order, this is also referred to as the consumption sequence or consumption sequence method. Another example of the use of first in - first out is in accounting. FIFO is often used in the batch-controlled process manufacturing industry.

The successful use of FIFO requires companies to document the order in which goods are received into the warehouse. When an order arrives, the company accesses the stock that has been in the warehouse the longest. The newer goods remain in the warehouse.

The FIFO principle generates various benefits:

• Waste is avoided as products are not forgotten in the warehouse until they can no longer be used.
• Constant storage duration, as the use in a fixed sequence generally results in a constant flow of stock removal and the stock is regularly replenished.
• Satisfied customers, as companies always receive new products or fresh goods wherever possible.

• Food industry: Similar to FEFO, FIFO is used in the food industry to ensure that the oldest stock is sold first. This helps to ensure product freshness and minimize waste, especially for products that do not spoil quickly.
• Pharmaceutical industry: FIFO is also used in this industry to ensure that older batches of drugs and pharmaceutical products are used first to manage expiration dates and ensure product safety.

• In accounting, FIFO is used in connection with inventory valuation.
• In merchandise management, FIFO is used to manage stock levels.
• In IT, FIFO is used to create a data structure. In a kind of queue, elements that are inserted first are also removed first.
• FIFO is used in production technology to manage and control material flows.

FIFO (First-In, First-Out) is a fundamental principle used in warehousing. Here are some of the main advantages of the FIFO principle:

Simplicity

The implementation and understanding of FIFO is simple. The basic idea that the first in is the first out is easy to understand.

Reduced inventory holding time

FIFO helps to minimize the time items spend in the warehouse. Prioritizing older stock for shipment or consumption ensures that goods move through the storage area faster. This not only reduces warehousing costs, but also reduces the risk of items suffering damage due to long storage times. Particularly relevant for perishable goods where shelf life is critical.

Cost efficiency

FIFO can help reduce inventory costs by getting rid of older stock first. This can also reduce the need for markdowns on older goods.

Quality control

Using FIFO ensures that the oldest products are used or sold first, which helps to maintain product quality and freshness. This is especially important for food, medicine and other perishable or sensitive products. This helps to maintain consistency in product quality by preventing products from being stored for too long and losing quality as a result. It also promotes customer confidence in the freshness and quality of products.

Transparency and traceability

Method of tracking products through the warehouse. This makes it easier to manage and locate items, especially in the event of recalls or quality control measures.

Inventory valuation

In accounting and financial reporting, the FIFO method helps to obtain a realistic valuation of stock. As the oldest and often cheaper stock is used up first, inventory costs tend to reflect current market prices.

Avoidance of obsolescence

The consistent application of the FIFO principle ensures that older products do not remain unused in the warehouse and become obsolete or expire. FIFO ensures that products are used in the order in which they are received. This is particularly important for products with a limited lifespan, such as technological devices or fashion items that can quickly become obsolete. This reduces losses due to obsolete or unsaleable stock and ensures that investment in inventory is used effectively. It also helps to keep stock levels up to date and make room for new products.

Periodic FIFO principle

The periodic FIFO principle values and manages inventories at the end of a specific period. For this purpose, an inventory date is defined at which the current stock level is determined.

• Determination of consumption:
  Another task of the periodic FIFO principle is to compare the current stock level with that of the previous inventory. In this way, companies can see the consumption that has occurred in the previous interval.
• Supports constant stock levels:
  The permanent FIFO principle is mainly used by companies that have a high volume of purchase orders and whose stock levels fluctuate greatly. Stock movements must be documented in detail. To do this, companies need a suitable inventory management system.

Permanent FIFO principle

With the permanent FIFO principle, stock levels are always updated as soon as goods are put into and taken out of storage. To achieve this, companies record stock movements and update the stock in real time. This enables companies to maintain an up-to-date overview of stock levels and specify the stock value.

• Supports fluctuating stock levels:
  The permanent FIFO principle is mainly used by companies that have a high order volume and whose stock levels fluctuate greatly. Stock movements must be documented in detail. To do this, companies need a suitable inventory management system.

LIFO, LOFO and HIFO are further warehouse strategies.

• LIFO "Last In - First Out": LIFO follows the principle that the goods that reached the warehouse last are used and consumed first. The goods are therefore used in the opposite order to that in which they arrived.
• LOFO "Lowest In - First Out": LOFO refers to a process in which the cheapest goods are used first.
• HIFO "Highest In - First Out": HIFO follows the principle that the most expensive goods leave the warehouse first.

LIFO is used when companies are affected by inflation. LIFO ensures that the latest goods are sold first. This reduces taxation and can increase net income. LIFO is mostly used by companies in the retail and manufacturing sectors.

FIFO is particularly popular in companies whose products have expiration dates, such as electronics. The oldest product must be sold first to avoid waste and ensure safety and quality.

While FIFO is a common warehouse strategy, many companies prefer FEFO (First Expired, First Out), especially in industries with perishable goods. The Yaveon 365 industry-specific ERP is the ideal solution for efficiently implementing the FEFO principle to ensure product quality and safety.

• Shelf life and expiry control: The software can be used to define rules for the consumption and dispatch of goods depending on the minimum and remaining shelf life. This ensures that expiring goods are identified and used in good time, avoiding the risk of expired products in the warehouse.
• Batch management: Yaveon 365 enables detailed management and tracking of batches. Each batch is assigned an expiry date, which forms the basis for the FEFO strategy.
• Automated warehouse processes: The system can implement automated warehouse processes that ensure products with the earliest expiration date are picked and shipped first. This minimizes the risk of expired products in the warehouse.
• Mobile scanning and real-time data: By supporting mobile scanning solutions, employees in the warehouse can check expiry dates in real time and ensure that the FEFO strategy is adhered to.

Some typical storage strategies are

• FEFO: First Expired, First Out
• LIFO: Last In, First Out
• JIT: Just-in-Time
• HIFO: Highest In, First Out
• LOFO: Lowest In, First Out
• Chaotic warehousing