A common question we hear is “What does FIFO mean?” in relation to warehousing and logistics. Not only will we simply answer the question here, but we’ll also share why it’s important and how you can enhance operational efficiency through FIFO.
The question answered:
Let’s immediately start with the answer.
Quite simply, FIFO means first-in, first-out in the logistics and warehousing industries. Essentially, the first items ordered/warehoused are those which are sold first. This is applicable in most cases regardless of the inventory shelf life, and is commonly found in warehouses with a variety of SKUs. FIFO is contrary to LILO (Last In, Last Out) whereby inventory that comes in first, is also dispatched first.
With that out of the way, let’s get into the importance of FIFO inventory and how operations regardless of size can benefit.
Operations best suited for FIFO
Those that sell perishable products will find a greater ROI through selling the oldest items first. Such inventory examples include food, medicine and consumables.
Most warehousing and logistics operations already have a strong element of FIFO principles, though often inventory is simply assumed to be older. CartonCloud can help to more accurately represent inventory that is to be dispatched first.
Advantages of First-In, First-Out
The main advantage is that, generally speaking, there’s a lower cost of goods sold for the oldest inventory that is dispatched first. Often older items have been sourced at a lower price-point, as price increases are mostly unavoidable over time.
For those selling perishable goods, there’s also the obvious limited shelf life for each product. Most operations do have a system of sorts in place, though the implementation of warehouse management software can aid in enhancing accuracy, both in-field and at workstations.
A slight negative is the extra resources required to coordinate the allocation of inventory in a warehouse. Some warehouses simply do struggle with limited space to carry out FIFO operations.
To implement a simplified FIFO strategy, we’ll outlay some things to consider.
- Type of inventory and how regularly it’s dispatched
- The delicate nature of certain inventory such as wine
- Resources and manpower available to rotate stock
- Operational space available to carry out rotations
- Location of inventory and economic return of tasks
The first starting point is the verbal announcement between team members in an operation. Inventory can also be physically marked with time and date of receiving, with an allocation to specific areas of a warehouse.
A more robust solution can be implemented over time through feedback from staff members.
The bottom line
Some operations do not require any implementation of a FIFO strategy, whilst most do. Rolling out a simple solution is necessary to avoid stock losses and to create a greater return on inventory spend.
CartonCloud can help in not only creating a more robust and accurate First-In, First-Out solution but also optimizing a warehouse and its freight operations. We’re currently helping hundreds of clients, paired with thousands of users, to really enhance their operations.
Give us a call and see if we’re the right fit.