FIFO (First In, First Out)

FIFO stands for "First-In, First-Out" and is an inventory management method widely used by companies to optimize their operational and financial efficiency. Another other management method associated with this concept is called LIFO, which stands for “Last In, First Out.”

Using the FIFO principle, products or materials that have been stored first are also the first to be used or sold. This valuation method ensures that the oldest units are sold first, reducing the risk of expiry or overstocking.

This can help companies improve stock rotation, reduce storage costs, and minimize losses of unsold or out-of-date goods. By using FIFO, companies can avoid the cost associated with manual inventory management, as products are automatically sorted and used according to their expiry or production date.

Using the FIFO method can improve customer satisfaction by ensuring that the products they receive are always fresh and of optimum quality. It can also reinforce the company's reputation as a reliable and trusted supplier.

The FIFO method can also help companies to manage their accounting and calculate profits more accurately. Companies can attribute higher costs to products sold, as older products have often been purchased at lower prices. This can improve the accuracy of profits and losses in financial statements.

In some sectors, such as food service, companies have to comply with strict inventory management regulations. The FIFO method is often required to comply with these regulations, as it ensures that products are fresh and of optimal quality for consumers.

For example, a store uses the FIFO method to manage stocks of perishable products such as dairy products or fresh produce.

With the advancement of technology, inventory management can now be automated using inventory management software that incorporates the FIFO method. This can save a business time and money by automating manual tasks, a marketing technique for inventory management that optimizes productivity and production, while offering optimal service.