FIFO - First In First Out Warehousing (2024)

Here’s an Example of the FIFO Inventory Management Method

Let’s say your warehouse stores speakers.

In Week 1, you order 100 speakers for $50 each.
In Week 2, you order 400 speakers, but now they are $60 each because the supplier’s price went up.
You now have 500 speakers in stock.
In Week 3, you sell 400 speakers for $150 each, and you have 100 speakers left.

Using the FIFO method, you’ve sold out of the speakers that cost you $50. This means that your remaining speakers are priced at $60 each and worth $6000.

$60 x 100 = $6000 worth of speakers

On the other hand, if you used the LIFO inventory management method, those 400 speakers you sold in Week 3 would use the cost of the speaker in Week 2 ($60). As such, you would price the remaining 100 speakers at your Week 1 cost ($50), so your inventory using the LIFO method is worth $5000.

$50 x 1000 = $5000 worth of speakers

How Does a Manager Implement First in First Out Warehousing?

A warehouse manager has to ensure that FIFO happens in practice. While a corporate accountant is only concerned with the calculations, warehouse management must ensure the successful implementation of FIFO inventory control. How do you make this happen in your warehouses?

FIFO Pallet Racking System

Purchase a pallet racking system designed for FIFO warehouse management. Pallet flow rack systems, also known as gravity flow racking systems, allow your warehouse employees to feed goods into one end of a rack and retrieve it from the other end when needed. It uses the following workflow:

Forklift feeds pallet into the rear of the pallet flow rack system
Gravity pulls the pallet to the other end of the system
Forklift unloads the pallet when it gets to the other end

A track or roller system along the rails of the rack tilt downwards, moving packages from the loading side to the unloading side. In this way, your oldest pallet is always the first pallet removed.

In addition to enabling FIFO inventory control, pallet flow rack systems bring the following benefits:

Your Existing Pallet Racking System May Not Be Suitable for FIFO

There are several ways a warehouse can organize its pallets. However, not all of these may be amenable to the FIFO method. For instance, block stacking (also known as floor stacking) is the cheapest method since it involves no racking – pallets are simply stacked on the floor. While this is easy to implement, block stacking doesn’t work in a FIFO inventory management system since pallets are pulled on a last in, first out (LIFO) basis.

Similarly, stacking frames are temporary structures erected to provide racking during busy periods. They can easily be disassembled so that the warehouse can return to block stacking.

One of the disadvantages of stacking frames and block stacking is honeycombing. Honeycombing occurs when only one load is put in the pick position in order to avoid moving packages around. It’s a trade off between handling efficiency and storage efficiency that saves on material handling but leads to warehouse space waste.

Using an Inventory Management Model to Assess Optimal Inventory Levels

Your managers double the effectiveness and efficiency of first in first out warehousing when they couple it with other best practices. Economic order quantity (EOQ) is a popular inventory management model often coupled with FIFO. This inventory control model indicates the ideal amount of stock to order once inventory dips below a certain point.

The EOQ model serves businesses by protecting them from stock outs while also minimizing the amount of capital tied up in managing excess inventory.

Employing an Automated Storage and Retrieval System (AS/RS)

An automated storage and retrieval system (AS/RS) can help with first in first out warehousing. It automatically stores and retrieves loads, minimizing the amount of manual intervention.

An AS/RS is useful in your warehouse space if you have an exceptionally high volume of loads moving in and out of storage. Depending on your company’s requirements, it may be a cheaper alternative to building more warehouse space or acquiring more property. Since machinery manages the loads, they can be packed together more densely.

An AS/RS also provides enhanced tracking and data analytics. Management can lay out the warehouse more effectively based on which items are picked most often.

Automated storage and retrieval systems can help with more than just the FIFO method and overall efficiency. It can also reduce workplace accidents and injuries.

What Sorts of Businesses Should Use First in First Out Warehousing?

As demonstrated, FIFO inventory control helps whether you manage goods prone to spoilage or not. This method helps business owners use warehouse space more effectively, save on labour costs, and minimize wear and tear to their equipment.FIFOis particularly useful in the food and beverage industry, apparel industry where businesses must keep up with changing trends, pharmaceutical industry, cosmetics industry, and the electronics industry where products may become obsolete. Companies that export goods also use FIFO to comply with International Financial Reporting Standards (IFRS).

FEFO: An enhanced version of the FIFO method

While most business can benefit from FIFO, some benefit more than others. In fact, it’s considered a non-negotiable in some industries.

For instance, FIFO is essential in the food and beverage business. It applies not just to warehouses, but to store owners and even a consumer’s own kitchen. Approximately one-third of food produced for humans each year is wasted. That equals about 1.3 billion tons. Not only is this a moral failure, it’s an economic failure as well. This waste represents $630 billion USD in industrialized countries.

How do you ensure food and beverages don’t go to waste in your warehouse? By implementing an enhanced version of FIFO warehouse management: FEFO. FEFO, which stands for first expired, first out, goes beyond picking the oldest pallet and focus on picking the items closest to their expiration date.

Of course, it would be incredibly difficult, not to mention expensive, to track each individual item. This is where lot control comes in. Lot number control is the ability to track all the inventory in your warehouse from its origin to customers . In addition to managing spoilage, lot control allows companies to address product recalls.

Keep in mind that expiration dates seriously impact consumer decision making. Convincing consumers to choose your products isn’t as simple as getting your products to the store before the expiry date.

Only 6% of shoppers don’t check the expiration date while shopping. This isn’t surprising considering no one wants to eat spoiled food. What may be surprising to business owners is the window consumers expect between when they buy a product and when it expires.

Majority of shoppers won’t buy an item if it’s too close to its expiration. What counts as too close? Well, according to the same report, anything less than 5 days is unacceptable for 25 % of shoppers.

In other words, it pays to get your products to consumers sooner rather than later.

First In, First Out Reduces Spoilage, Streamlines Processes, and Maximizes Warehouse Space

First in, first out (FIFO) warehousing is the most popular method for organizing your warehouse space. And at the accounting level, FIFO is one of the most accurate ways to calculate the amount of inventory available. The FIFO method introduces efficiency by limiting material handling and minimizing the overall usage of warehouse space.

Furthermore, it reduces the likelihood of spoilage or obsolescence, particularly for companies in the food and beverage, pharmaceutical, electronics, and apparel industries.

Check out our 3PL Software or Order Fulfillment System to learn more.

FAQs: First In First Out Warehousing

Q: What is First In First Out Warehousing?

A: First In First Out (FIFO) warehousing is an inventory control method where the first items to come into the warehouse are the first items to leave. This method is beneficial in avoiding obsolescence or expiry of products, thereby preventing accumulation of unsellable inventory.

Q: How does First In First Out Warehousing work in practice?

A: To implement FIFO warehousing, warehouse managers typically use pallet racking systems designed for FIFO management. These systems, also known as gravity flow racking systems, allow warehouse employees to feed goods into one end of a rack and retrieve it from the other end when needed, ensuring that the oldest pallet is always the first one removed.

Q: How does FIFO Warehousing reduce spoilage and maximize warehouse space?

A: FIFO warehousing reduces spoilage by ensuring that the oldest inventory items are sold first, thereby decreasing the risk of items expiring or becoming obsolete before they can be sold. Furthermore, FIFO warehousing, particularly when implemented using pallet flow racking systems, allows for denser packing of goods, thereby maximizing warehouse space usage.

Q: What kinds of businesses can benefit from First In First Out Warehousing?

A: A wide range of businesses can benefit from FIFO warehousing, including those in the food and beverage industry, the apparel industry, the pharmaceutical industry, and the electronics industry. In these sectors, products often have a risk of spoiling, becoming obsolete, or needing to keep up with changing trends, making FIFO an effective inventory management strategy.

Q: What is FEFO, and how is it related to FIFO?

A: FEFO stands for “First Expired, First Out”. It is an enhanced version of FIFO that focuses on picking items closest to their expiration date, rather than just the oldest items. This method is particularly useful in industries like food and beverage, where preventing spoilage is critical.

Q: Can First In First Out Warehousing be automated?

A: Yes, an Automated Storage and Retrieval System (AS/RS) can automate the process of storing and retrieving loads in a FIFO warehousing system. This can minimize manual intervention, enhance tracking and data analytics, and potentially reduce warehouse space requirements, especially for businesses with a high volume of loads moving in and out of storage.