Did You Know? - Fifo Fefo Lifo Methods in Warehouse Inventory Management

In the warehousing industry, inventory management is the activity of controlling, supervising, and managing stock inventory as part of the supply chain. It aims to monitor the flow of stock from the purchasing process, storage (entering the warehouse), to sales (leaving the warehouse).

Commonly used inventory management methods are FIFO, FEFO, and LIFO. Each of these methods can help you manage the stock flow more effectively. Here is an explanation of each method:

1. First-In, First-Out (FIFO) Method. This method organizes stock based on the order of time it enters the warehouse. The first goods to enter the warehouse are the first to leave the warehouse. By using the FIFO method, you can avoid the possibility of goods that have been in stock for a long time expiring or decreasing in quality. Companies that often apply this management method include those in the food and beverage, pharmaceutical, and other industries with products that have expiration dates.
2. First-Expired, First-Out (FEFO) Method. This method is similar to FIFO but prioritizes releasing goods approaching their expiration date. By using the FEFO method, you can ensure that the goods that will be released are still fresh and of good quality. Companies that often apply this management method include those in the retail, food and beverage, pharmaceutical, and other industries dealing with perishable inventory.
3. Last-In, First-Out (LIFO) Method. This method is the opposite of the FIFO method. The goods that entered the warehouse last will be the first to leave the warehouse. The LIFO method is suitable when goods' prices increase over time, allowing businesses to take advantage of this momentum and reap greater profits.  By using the LIFO method, you can reduce the tax burden that must be paid because the cost of goods sold is based on the higher recent purchase prices.

Each method has advantages and disadvantages. Choosing the most appropriate method for your business depends on the type of product, the nature of the stock, and the business's needs. Each method must be carefully evaluated, and the potential benefits and consequences must be considered before implementation.

Hopefully, the information above can provide you with valuable insights into determining the most effective method for controlling, supervising, and managing stock inventory in your warehouse to prevent the risk of unsold goods and/or exceeding expiration dates. If you need help or further information regarding insurance, please contact us at 021 - 2523110 and we will be happy to assist you.