FIFO, FEFO and LIFO are the three main strategies for warehouse management. But what do the three abbreviations actually stand for and what exactly do they mean?
All these are methods of assessment, accounting, and logistic rotation of goods and materials inside the warehouse.
FIFO=First In First Out
- FIFO means that products stored first are to be retrieved first. The no longer valid Guidelines on Good Distribution Practice of Medicinal Products for Human Use required "a system to ensure stock rotation ("first in first out") with regular and frequent checks that the system is operating correctly". Further on it said: "Products returned to saleable stock should be placed such that the 'first in first out' system operates effectively."
- The use of this method is typical for warehouses containing products with a short period of sale: food, and pharmaceuticals, and is especially important for perishable stocks. Building a warehouse system according to the FEFO method is much more complicated than according to FIFO and even more so LIFO, especially in the presence of a wide range of goods with different shelf life depending on storage conditions, however, the application of the method ultimately allows to reduce product losses as a result of the expiration of shelf life.
FEFO = First Expire First Out
- FEFO is to ensure that the product with the shortest expiry date is placed on the market first. This makes it possible to reduce business overheads from wastage and the additional work and cost associated with returns. It also helps to ensure that products reaching end users have sufficient remaining shelf life.
- The stock should be rotated according to the ‘first expiry, first-out' (FEFO) principle. Exceptions should be documented." "Products returned to saleable stock should be placed such that the ‘first expired first out’ (FEFO) system operates effectively."
- According to the WHO Good storage and distribution practices for medical products, "Materials and medical products should be stored in conditions that assure that their quality is maintained. Stock should be appropriately rotated. The “first expired/first-out” (FEFO) principle should be followed."
- When accounting for stocks of a similar product purchased at different times at different prices, it is necessary to determine: what to issue first; both physically (in the warehouse) and on paper (in the books). According to the FIFO method, the oldest received product is issued first.
LIFO = Last In First Out
- Working according to the LIFO principle means that the last goods to be stocked are the first goods to be removed. LIFO is mentioned in the WHO Good storage and distribution practices for medical products, where it says that "vehicles and containers should be loaded carefully and systematically on a last-in/first-out (LIFO) basis, to save time when unloading, to prevent physical damage and to reduce security risks. Extra care should be taken during loading and unloading of cartons, to avoid damage."
- The principle assumes the shipment of the goods that arrived last first; this option is suitable for warehouses with large volumes of goods, if the storage areas form a stack.
Reasons to use the FIFO / FEFO method:
- The expiry date of the goods (avoid stale goods)
- The price of the product
- Prompt detection of a faulty batch
- Getting the best performance when attracting investment
Features of LIFO accounting:
- The actual movement of stocks of goods is rarely taken into account;
- It is assumed that all goods purchased during the period can be offered for sale, regardless of the date of their purchase;
- Inventory at the end of the period is valued at the cost of the first purchases.
There is also FPFO (first product, first out) and BBD (best before date), but in my opinion, they are an interpretation of FIFO and FEFO.
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Warehouse
