Glossary

First In / First Out (FIFO)

Definition

First In / First Out (FIFO) is a method of organizing and manipulating inventory in warehouses and distribution centers. Under the FIFO approach, the items that have been in stock the longest are the first to be picked and shipped out. This method ensures that older items do not become obsolete or spoil while sitting in the warehouse, and it is particularly useful for managing perishable goods or products with a limited shelf life.

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FAQ

What are the advantages of using the FIFO method?

- Reduced spoilage: FIFO helps to minimize spoilage or waste by ensuring that older items are used or sold first, especially for perishable goods. - Accurate inventory valuation: FIFO provides a more accurate inventory valuation since the most recently purchased items remain in inventory. - Simplified tracking: FIFO simplifies the tracking of items within the warehouse, making it easier to manage inventory levels and replenishment. - Compliance with regulations: For some industries, such as food and pharmaceuticals, FIFO is a regulatory requirement to ensure product safety and quality.

How does the FIFO method differ from the Last In / First Out (LIFO) method?

The Last In / First Out (LIFO) method is the opposite of FIFO. Under LIFO, the most recently received items are the first to be picked and shipped. LIFO is more commonly used for products with a longer shelf life or those that do not experience significant changes in value over time.

Are there any disadvantages to using the FIFO method?

- Space requirements: FIFO can require more warehouse space, as items need to be stored and accessed in the order in which they were received. - Complexity: Implementing a FIFO system may be more complex than other inventory management methods, as it requires careful planning and organization.

What industries typically use the FIFO method?

FIFO is commonly used in industries dealing with perishable goods, such as food and beverages, pharmaceuticals, and cosmetics. It is also used in industries with products that have a limited shelf life or experience rapid changes in value or technology, such as electronics.

Example or usage in road freight logistics

A distribution center for a supermarket chain uses the FIFO method to manage its inventory of perishable food items. As new shipments of fruits, vegetables, and other perishable goods arrive, they are placed at the back of the storage area, while older items are positioned at the front for easy access. When it's time to ship the items to the supermarkets, workers pick the older items first, ensuring that the freshest products remain in stock for the longest possible time, reducing spoilage and waste.

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