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FIFO Procedures For Warehousing_Featured

FIFO Procedures for Warehousing

If there’s one thing that’s true in warehousing, it’s that you need a strategy. You’ll find a number of different solutions availabl...
Jon Michael Soracchi
October 14, 2019

If there’s one thing that’s true in warehousing, it’s that you need a strategy. You’ll find a number of different solutions available to you. The FIFO procedure is one way you can manage your warehouse. Learn more about this method and how to implement FIFO in your warehouse.

Leverage the best warehouse strategy to meet your business needs. FIFO stands for First In, First Out. It is a procedure which means the oldest inventory is shipped out first. FIFO, FEFO and LIFO all apply in different situations. Integrate FIFO procedures into your warehouse to strategize and streamline operations.

What is FIFO?What Is FIFO

FIFO stands for First In, First Out. It is as simple as it sounds. When using this method of warehouse management, the oldest stock of inventory is shipped out first. The newest inventory stays until the oldest is shipped out to stores or directly to consumers.

The FIFO procedure for distribution is a solid strategy to choose if the products in your warehouse have a shelf life. Items like batteries, beauty products, fashion and apparel, nutraceuticals and supplements all need to move quickly. If you're warehousing products with an expiration date, FIFO warehousing procedures might be for you. When using a FIFO method, the oldest inventory moves first.

In the most simple terms, FIFO warehousing compares to the method you might use to keep your refrigerator at home organized. When you’re running low on milk, you likely buy a new gallon and place it behind the almost empty gallon. You wait until the old milk is gone before moving the new milk to the front and using it on your cereal or pouring it in your coffee.

FIFO can be a cost-effective method to manage warehouse inventory. FIFO allows retailers and ecommerce businesses to get products to stores and customers quickly.

The FIFO method assumes easy cost flow.
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How Do FIFO Procedures Compare to Other Warehousing Methods?

A FIFO warehouse is often compared to FEFO and LIFO methods of warehousing. Learn more about these procedures and how they compare to FIFO.

What is FEFO?

FEFO stands for First Expiring, First Out. Like FIFO, it is as simple as it sounds. When using this method of warehouse management, the stock that expires first is shipped out first. The inventory that expires first is sent out to stores or directly to consumers first. FEFO might be the strategy for you if your products expire quickly. Many certified food grade warehouses rely on FEFO procedures to keep inventory fresh.

Again, you might compare the FEFO method to a method you use to organize your refrigerator at home. You might keep products with a brief shelf life (like fresh meat from the butcher) or dairy products in front of more shelf-stable products so they are used first.

Fast-moving consumer goods are good candidates for FEFO warehousing methods. Warehouses storing pharmaceutical products and medicines might take advantage of a FEFO procedure to quickly distribute inventory purchased.

What is LIFO?

LIFO stands for Last In, First Out. In this case, the products that are moved into the warehouse most recently are shipped out first. This means the new stock takes precedence over the old stock.

If your warehouse products that don’t expire, LIFO might be for you. Your accountant might like it if you use LIFO, too. You might find that using LIFO allows you to relate recent costs to recent revenue. This can be a worthwhile approach if your costs of manufacturing the product are on the rise. If the products being sold are made less expensively, this can alter your profit margins by providing you with old information opposed to what’s happening right now.

LIFO is only an option for products that don’t expire. Bricks, sand and coal might all be warehoused with LIFO procedures. These products don’t expire and in many cases, the new batch is placed on top of the old batch in the warehouse.
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FIFO vs FEFO vs LIFO

In many cases, the warehousing procedure you choose depends on the product you are warehousing. With products that have a lifespan, FIFO might be the best option. Products move quickly through the warehouse and inventory costs are reduced. FEFO is also a solid method for expiring products. LIFO only applies to stable goods that don’t apply to any timeline. Selecting a method for warehousing depends on the products you’ll be storing.

Pros and Cons of Choosing FIFO ProceduresPros and Cons of Choosing FIFO Procedures

Logistics and warehousing are all about getting the right product to the right place at the right time. A FIFO procedure in your warehouse can help you do this.

There are many benefits of choosing a FIFO procedure for your warehouse. Five benefits of FIFO include:

  1. Reduce spoiled and expired products: When you ship out the oldest stock first, you increase the chance that the item will sell before it reaches its expiration date. This can help businesses reduce the quantity of inventory that remains unsold, helping them improve profits.
  2. Reduce obsolete inventory: Obsolete inventory refers to products that are outdated and no longer useful to consumers. When products are moving in and out of the warehouse quickly, you can reduce the chances of an item becoming obsolete before it is ultimately sold to a consumer.
  3. Make quality control easy: Another benefit of using FIFO is that quality control becomes simple. Shipping products in the order you get them makes it easy to track deliveries. If a product is bad, you know what supplier brought it in and when it was received.
  4. Minimize the impact of inflation: Inflation refers to the increase in prices over time. FIFO can reduce the impact of inflation on suppliers, retailers and ecommerce businesses. Because the old product is the first sold, it might have cost less to make than newer inventory. This keeps prices accurate and helps retailers and ecommerce businesses manage inventory and profits.
  5. Keep current inventory value: Using FIFO procedures in your warehouse can help suppliers, retailers and ecommerce businesses keep current with inventory value. As items purchased are pulled from shelves, the inventory system includes the most recently purchased inventory. This helps make sure that the inventory value and cost of goods sold is reflective of current market prices.

You might find that FIFO gives a more accurate indicator of the value of your warehouse stock. FIFO can also help businesses increase net income as older inventory is moved quickly and inventory control is more efficient.

Even though there are many benefits of choosing a FIFO system to manage your warehouse, you might find a few cons depending on your situation. These cons might include:

  • Reworking your warehouse space: When implementing FIFO procedures, you’ll need to be careful with how you use the space in your warehouse. You’ll need to make the oldest products most accessible, while reducing materials handling to make the system most efficient. This might require reworking the physical space in your warehouse.
    Inflexibility in some situations: FIFO might not be for everyone. If your company doesn’t fit a certain mold, FIFO might not work for you. Some products, like food and pharmaceuticals, might expire very quickly and require FEFO warehousing. Other products that don’t expire, like bricks or building materials, might benefit from LIFO procedures to help you make the most of your space.
  • FIFO requires tracking your inventory: Taking advantage of FIFO procedures means keeping careful track of your inventory and using better systems for compliance. The amount of products entering and exiting the warehouse, along with the accessibility of stock and the layout, means that you might need to upgrade your tracking methods when implementing FIFO.
    FIFO can be difficult to scale: If you have a large warehouse operation or multiple warehouses, you need to scale FIFO to meet your needs. Thousands of SKUs at different locations can mean constant updates to your numbers. The larger your inventory, the more difficult tracking can be.

It is important to weigh the pros and cons when considering choosing a warehousing method. FIFO procedures come with both advantages and disadvantages. Overall, if you’re warehousing goods with an expiration date, FIFO standard operating procedure might be for you.
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Reasons to Use FIFO ProceduresReasons To Use FIFO Procedures

A FIFO system can be ideal in a number of warehousing situations. In fact, many warehouses rely on FIFO procedures for inventory management. Taking advantage of FIFO procedures can help you boost efficiency and throughput in your warehouse. Learn about the benefits of using FIFO procedures in your warehouse.
Increased Customer Satisfaction

Implementing an effective FIFO process can help improve quality control. In doing so, customer satisfaction can increase. Shipping out older stock efficiently can mean that customers receive consistent products. Customers are less likely to get obsolete products because stock is rotated adequately.

Reduced Errors

The chances of a customer receiving an obsolete product are greatly reduced when FIFO procedures are employed. Reducing errors and eliminating obsolete items is important in many situations. Items like technology and fast fashion can become outdated quickly.

Make Warranties Accessible

In many cases, a product’s warranty starts at its date of manufacture and spans over a certain period of time. FIFO can help ensure the product’s warranty is in effect for consumers.

Keep Inventory Fresh

When the oldest items leave the warehouse first, you are keeping your inventory as fresh as possible. This ensures products are out of the warehouse before they become obsolete or reach the expiration date. This can help retailers and ecommerce fulfillment businesses reduce the quantity of inventory that remains unsold, helping them improve profits.

Minimizing the Impact of Rising Prices

It’s an economical fact: The price of goods is always on the rise. Inflation slowly makes things more expensive. Employing FIFO procedures can help minimize the impact of rising prices. Because the older inventory that cost less to make is shipped out first, ecommerce businesses and retailers can better manage their profits and inventory.

There are a number of reasons to use FIFO procedures. Make organizing your inventory easy with a FIFO system.

Reasons Not to Use FIFO ProceduresReasons Not To Use FIFO Procedures

Along with the pros and cons of using FIFO procedures in your warehouse, you might find a number of reasons why it won’t work for you. There are a few situations in which FIFO might not yield optimal results. Reasons your warehouse might opt for another strategy for managing inventory can vary. Learn about a few of the situations in which FIFO might not be your best option.
Priority Orders

If you’re shipping out high priority orders, you might have to bypass the FIFO process. Prioritizing the orders in your warehouse might require some products to “cut in line” and eschew FIFO procedures.

Discrepancies in Storage Costs

It might make financial sense for some retailers, ecommerce businesses and other customers to not engage in FIFO procedures. If warehousing costs change, these partners might need to change the way their goods are shipped out. If warehousing costs change or additional space is suddenly required, an ecommerce business or retailer might need to adopt a LIFO strategy to clear the space to save on costs.

Overstated Profits

From an accounting standpoint, FIFO could unintentionally overstate the gross margin a business earns. This can happen most easily during periods of high inflation in the financial sector. The way in which this can affect your business is inflated margins from using FIFO accounting can bring on higher income taxes. This is something that will need an eye kept on it.

Shipping Order

FIFO might not work if the products in your warehouse need to be shipped out in a certain order. For example, if the production sequence of the products in your warehouse suggests that the items that arrived most recently need to be shipped out first, you might break FIFO.

Space Constraints

You might need to break FIFO when you simply don’t have room in your warehouse facility for proper materials handling. If there isn’t enough space on the shop floor, you might need to stop the FIFO lane. Different parallel segments can help manage flow in this scenario.

Choosing what system you use to manage your warehouse comes with lots of considerations. In many cases, FIFO is a one-size-fits-all approach. In a few other cases, you might weigh your options and find a better system to meet your needs.
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How to Implement FIFO

In most cases when you’re warehousing expiring products, you need a FIFO warehouse management system that involves specific procedures during the put away and picking process. Implementing FIFO procedures in your warehouse can be a savvy business move.

Aging Your Product

One step in implementing FIFO procedures in your warehouse is aging your product. There are several ways you can do this. Consider the following when aging the product in your warehouse:

  • Expiry dates: Looking at the expiration dates on your products is one way you can age your warehouse product. Using the dates marked on the products can make it easy to see which products entered the warehouse first and should leave first. Learn more abiut expiring product fulfillment.
  • Lot control: Grouping products that arrive at the same time together in your warehouse is a form of lot control that makes it easy to determine the dates on which it arrived. You can further simplify lot control by using dated lot labels. Lot control can work even if the product is not stored on pallets.
  • Sequential pallet licensing: You can also implement FIFO procedures by using sequential pallet licensing. Sequential pallet licensing involves using sequentially dated plates to identify pallets. Older pallets would be marked with lower pallet numbers, making the warehouse FIFO procedures simple and straightforward.

Overall, creating a FIFO warehouse layout conducive to making your operations more efficient will go a long way toward turning over items faster. The above tips can help you date and age your products so you can easily implement FIFO procedures.

Implementing FIFO Procedures

There are a few other considerations to make when implementing FIFO procedures. Things you can do to make the process easier include:

  • Label items efficiently: Using a clear labeling process like sequential pallet licensing can help you identify the oldest items in the warehouse so you know what to ship out first.
    Make older items most accessible: When implementing FIFO procedures, it is important that the older items are the most accessible in the warehouse. Make considerations in the put-away process to store product to make material handling easy.
  • Stack the pallets appropriately: When organizing the warehouse, it is important that new pallets are not stacked on old pallets. Should older pallets be stored under new pallets, more material movement is required for FIFO procedures. Stacking pallets appropriately makes the fulfillment process easier.

Implementing FIFO procedures in your warehouse can be a smart business move.

You need a strategy on how to best handle the inventory in your warehouse. There are a number of different options available to you, including FIFO, FEFO and LIFO. Leveraging the best strategy for your warehouse can help you streamline operations.

Let R+L Global Logistics Help With FIFO Warehousing

Now that you’ve decided FIFO is the right way to go for your business, let R+L Global Logistics manage your fulfillment warehousing needs.

R+L Global Logistics can also take the next step in the supply chain by shipping the freight for you to retailers. With a 99.5% on-time rate and real-time visibility on shipments, we can give you the confidence that your products will be moved quickly.

Call 866-989-3082 or contact us online today to find out how R+L Global Logistics can offer your business solutions it both needs and wants.

With plenty of available warehouse space and expertise in the industry, R+L Global Logistics can help you set up your retail fulfillment and also manage the FIFO procedure to perfection so your business can reach maximum efficiency.
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