Inventory management is a critical function for any product-oriented business. First-in, first-out (FIFO) and last-in, first-out (LIFO) are two common methods of inventory valuation for businesses. The system you choose can have a profound impact on your taxes, revenue, logistics and profitability. Learn how both methods work and the key differences between them; then consult with your CPA or tax attorney to determine the best method for your business.
When to use the FIFO method?
The FIFO method is commonly used to manage inventory of perishable products with expiration dates, most commonly food, pharmaceuticals and cosmetics.
It is also a common management method for companies that store products that may become obsolete or “out of date” relatively quickly (e.g. technical products (home appliances, computers, etc.), footwear and textiles).
The ultimate goal of FIFO is to achieve excellent inventory turnover in the warehouse, prioritizing the output of products that have been stored the longest and are likely to deteriorate or become obsolete.
FIFO-type inventory management is not only applicable in a warehouse environment, but is also used to manage products in supermarkets and consumer outlets on a daily basis.
Advantages and benefits of the FIFO method
Using the FIFO method for warehouse inventory management offers the following key benefits.
● Perfect inventory turnover, ensuring that the first product to enter the pallet racking system will come out first.
● Priority output of the oldest or obsolete products, or those with the earliest expiration date.
● This prevents the loss of some or all of the value of stored products or their depreciation due to the date of manufacture.
Which storage systems allow FIFO management?
The use of FIFO warehouse management is so widespread that a range of industrial storage systems have been developed that are particularly adapted to this approach.
These pallet racking systems must share a common feature in that they must all have one aisle for loading goods and another for unloading them. In other words, the loading and unloading aisles must be different, such as drive-in or push-back systems.
The following storage systems have this common feature, allowing warehouse management through the FIFO method.
Aceallyshuttle racking system for pallets.
High-density semi-automatic storage system that uses a motorized pallet shuttle to automatically transport loads from the loading position to the last available position in the rear. To implement the FIFO method, loads must be loaded on one side and unloaded on the other.
Carton live flow picking systems.
High density real-time storage system for boxes and light products. Product moves along the rollers from the loading area to the unloading area.
Live pallet racking (FIFO).
A high-density real-time storage system for pallets. Pallet loads move along a roller bed from the loading area to the unloading area.
Drive Through – Compact pallet racking system.
The compact storage system reduces the number of working aisles and, unlike Drive In, it has aisles for loading and another for unloading the goods. In order for the FIFO method to work properly in this system, once the aisle is loaded and completed, you must completely unload the aisle and leave it empty to start the loading process again to ensure that no pallet ends up obsolete.
If you need any advice in deciding which Aceally racking FIFO storage system best suits the needs of your company and warehouse, send us your inquiry here and our professionals will advise you without any obligation.
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Post time: Jan-10-2022