Difference between FIFO, FEFO, and LIFO: Best Inventory Management Practices

What is FIFO?

FIFO, or First In First Out, is a widely recognized inventory management method that prioritizes selling older inventory before newer stock. 

Essential for industries:

Critical in food, beverage, and pharmaceuticals due to expiration dates.
Benefits:

Reduces spoilage and financial losses from dead stock.
Mitigates inflation effects by selling older, lower-priced inventory.
Regulatory Support:

Backed by EU Guidelines on Good Distribution Practice.

What is FEFO?

FEFO, which stands for First Expire First Out, is an inventory management strategy that focuses on selling products with the shortest remaining shelf life first.

Highlights include:

Ideal for perishables:
Crucial for managing expiration in food and pharmaceuticals.
Waste Reduction:
Minimizes waste and lowers overhead costs from expired products.
Implementation:
Requires clear labeling with serial or lot numbers for effective tracking.
Regulatory Compliance:
Supported by EU GDP Guidelines for stock rotation.

What is LIFO?

LIFO, or Last In First Out, is an inventory management strategy where the most recently acquired stock is sold first. 

Key considerations:

Usage:
More common for non-perishable items or when inventory costs are rising.
Challenges:
Can lead to inventory aging and spoilage, particularly for perishable goods.
Operational Note:
Mentioned in WHO Good Storage and Distribution Practices for systematic loading.

Comparison of FIFO, FEFO, and LIFO

FIFO vs. FEFO:
FIFO: Prioritizes order of entry; suitable for products without strict expiration concerns.
FEFO: Prioritizes based on expiration dates; best for perishable goods.
FIFO vs. LIFO:
FIFO: Ensures product freshness by selling older stock first.
LIFO: Sells newer stock first; may benefit financial reporting but risks spoilage of older inventory.

Advantages and Disadvantages

FIFO:
Advantages: Prevents dead stock, maintains freshness, mitigates inflation effects.
Disadvantages: Requires careful stock rotation and monitoring.
FEFO:
Advantages: Reduces waste by selling products near expiry, enhances quality.
Disadvantages: Needs robust tracking systems.
LIFO:
Advantages: Can be financially beneficial during inflation.
Disadvantages: May result in inventory aging and spoilage; less suitable for perishables.

Effective Inventory Management Practices

Implement Appropriate Stock Rotation:

Use FIFO or FEFO based on product shelf life.
Training and Technology:

Regular staff training on inventory handling.
Invest in inventory management software to monitor expiration dates.
Regular Audits:

Conduct audits to identify slow-moving items and optimize stock levels.