FIFO (First In First Out) explained simply

The FIFO procedure, or FIFO principle, is used to evaluate inventory or stock. Because goods are consumed in a specific sequence, FIFO is also referred to as a consumption sequence or consumption method. Another example of applying First In – First Out is in accounting. FIFO is frequently used in the batch-driven process manufacturing industry.

The successful use of FIFO requires companies to document the order in which goods entered inventory. When an order comes in, the company accesses the stock that has been in the warehouse the longest, while the newer goods remain in storage.

The FIFO principle generates various benefits:

• Avoidance of waste: Products are not forgotten in the warehouse until they can no longer be used.
• Consistent storage duration: Because items are used in a defined sequence, a steady outflow is created, and stock is regularly replenished.
• Satisfied customers: Companies can ensure that customers always receive the newest products and the freshest goods possible.

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

• In accounting, FIFO is applied in connection with inventory valuation.
• In inventory management, FIFO is used to manage stock levels. 
• In Information Technology, FIFO is applied to build data structures. In a type of queue, the first elements entered are also the first to be removed.
• In production technology, FIFO is used to manage and control material flows.

FIFO (First In, First Out) is a fundamental principle used in inventory management. Here are some of its main benefits:

Simplicity

Implementing and understanding FIFO is straightforward. The basic idea – that the first items in are also the first items out – is easy to grasp.

Shorter storage time:

FIFO helps minimize the time items spend in the warehouse. By prioritizing older stock for delivery or consumption, goods move through the warehouse more quickly. This not only reduces storage costs but also lowers the risk of products being damaged due to long storage periods. This is especially relevant for perishable goods where shelf life plays a critical role.

Cost efficiency

FIFO can help lower inventory costs by reducing older stock first. It can also decrease the need for price markdowns on older goods.

Quality control

By using FIFO, the oldest products are used or sold first, which helps maintain the quality and freshness of goods. This is particularly important for food, medicines, and other perishable or sensitive products. FIFO also supports consistent product quality by preventing items from being stored too long and losing value, fostering customer trust in freshness and quality.

Transparency and traceability

FIFO provides a clear method for tracking products through the warehouse. This makes it easier to manage and locate items, particularly in the case of recalls or quality audits.

Inventory valuation

In accounting and financial reporting, the FIFO method helps provide a realistic valuation of stock. Since the oldest and often lower-cost items are consumed first, inventory costs more accurately reflect current market prices.

Avoidance of obsolescence

Consistent application of FIFO ensures that older products do not remain unused in the warehouse until they become obsolete or expire. This is particularly important for products with a limited lifecycle, such as technology or fashion items, which can quickly become outdated. FIFO reduces losses from obsolete or unsellable inventory, ensures that investments in stock are used effectively, and helps keep inventory current while freeing up space for new products.

Periodic FIFO principle

The periodic FIFO principle evaluates and manages inventory at the end of a defined period. A specific inventory date is set to determine the current stock level.

• Consumption determination:
  Another task of the periodic FIFO principle is to compare the current stock with that of the previous inventory. This shows companies the consumption that occurred during the last interval.
• Supports constant stock levels:
  Companies with high order volumes and strongly fluctuating inventory levels primarily use the perpetual FIFO principle. To apply it, stock movements must be documented in detail, which requires a suitable inventory management system.

Perpetual FIFO principle

With the perpetual FIFO principle, inventory is updated whenever goods are received or issued. To achieve this, companies record all stock movements and update inventory in real time. This enables them to maintain an accurate overview of current stock levels and determine the exact value of their inventory.

• Supports fluctuating stock levels:
  The perpetual FIFO principle is mainly used by companies with high order volumes and strongly fluctuating inventory levels. Stock movements must be documented in detail, requiring a suitable inventory management system.

LIFO, LOFO and HIFO are additional inventory strategies.

• LIFO "Last In - First Out": LIFO follows the principle that the goods most recently received in the warehouse are the first to be used or consumed. In other words, items are used in the reverse order of their arrival.
• LOFO "Lowest In - First Out": LOFO is a method 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 newest goods are sold first. This reduces taxation and can increase net income. Companies in retail and manufacturing often rely on LIFO.

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

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

• Shelf life and expiry control: With the software, rules can be defined for the consumption and shipping of goods based on minimum shelf life and remaining shelf life. This ensures that products approaching expiration are identified and used in time, preventing expired goods from remaining in stock.
• Batch management: Yaveon 365 enables detailed management and tracking of batches. Each batch is assigned an expiration date, forming the foundation 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 stock.
• Mobile scanning and real-time data: With mobile scanning solutions, warehouse employees can check expiration dates in real time and ensure consistent compliance with the FEFO strategy.

Some typical inventory 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 storage