What is the FIFO method (First In, First Out) and why is it important?

The FIFO method (“First In, First Out”) is a stock management rule that ensures the oldest items in inventory are used or sold first. In other words, the first product that enters is the first to leave.

This approach is especially important for perishable goods or items prone to obsolescence, as it prevents products from staying in storage too long and deteriorating. By applying FIFO, companies maintain healthy inventory rotation, reduce waste, and minimize value loss.

FIFO vs LIFO: what's the difference?

LIFO (Last In, First Out) is the opposite approach: the most recently received stock is shipped first. FIFO is preferred for perishable goods, pharmaceuticals, and food & beverage, where shelf life matters. LIFO can be advantageous in specific accounting contexts but often leads to obsolete stock sitting in warehouses.

When should you use FIFO?

FIFO is essential in industries where products expire or lose value over time: food & beverage, cosmetics, pharmaceuticals, and electronics. It's also the default standard for most retail and e-commerce operations, where customer satisfaction depends on delivering fresh, up-to-date products.

How does FIFO impact inventory costs?

By ensuring older stock moves first, FIFO reduces write-offs from expired or obsolete products. It also provides a more accurate picture of inventory valuation, since the remaining stock reflects the most recent (and often higher) purchase costs. For companies managing thousands of SKUs, this directly translates into better inventory optimization and lower carrying costs.

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