What is FIFO?
FIFO is an acronym for the methodology “first in, first out”.
The basic concept of this inventory management method is simple. You want to “sell” first, or remove first, the products that came into your warehouse or facility first. That is to say if you get one carton of milk in on the 10th and one in on the 11th, you want to sell the one that came in on the 10th first because that carton’s period of usability will run out sooner.
The FIFO method is for any perishable items or products that spoil, such as food or medicine; it is utilized by pharmacies, grocery stores, and more. There are also some interesting alternative applications of FIFO.
For example, I built the first FIFO inventory system for one of the world’s largest copper bar manufacturer and fabrication plants. Copper’s shelf life is a lot longer than most foods (well, maybe not Twinkies).
However, to this company, it was valuable to push out the oldest copper first. FIFO is implemented for many different kinds of products; in order to impose such a qualification as first in, first out, you need a system capable of keeping track of all your inventory, such as a warehouse management system or ERP that can handle the FIFO approach.
Since eCommerce is growing so rapidly and now all kinds of items are being sold online, even groceries, FIFO is something many online retailers now need their inventory system to handle.
The main difference between an inventory system that allows you to do FIFO and one that does not is that it forces you to label all of your items, even if they have a manufacturer UPC or barcode.
This is because the barcode must be different for items that came in on different P.O.’s (purchase orders) or have different expiration dates. If you are not using FIFO or do not need it, you can utilize manufacturer UPCs or barcodes, saving you from re-labeling every item in your warehouse.
This is desirable to save on labor costs and reduce time to market. The ability to have a mixed model is preferable if all of your products do not require FIFO. This way, you don’t have to label all the items that don’t require FIFO individually.
That’s the approach we took when building this ability into our eCommerce inventory management platform so it can cater to mixed models. If you’re receiving items that need FIFO, you receive them as FIFO items and are required to label them all OR you can receive as regular items that do not require FIFO and then utilize the manufacturer barcode if your items have them.
As an example, here’s how our eCommerce Inventory and Warehouse Management System SkuVault handles FIFO:
- 1. List lot number as part of SKU
- 2. SkuVault generates a new barcode for each shipment or lot (with the same expiration date [if applicable] and cost)
- 3. Label every item, since manufacturer UPCs can’t differentiate between lots to accomplish FIFO
- 4. This new SKU / barcode is built into a Product Grouping as alternates of the master SKU which sells online
- 5. Each SKU within the master SKU can be listed online as well if desired
- 6. Sort the SKUs within the grouping to pick prioritized (oldest) products first
- 7. Pick list prompts to pick the next lot number after the oldest one is out
- 8. This keeps full history and FIFO methodology for your products
- 9. You can do this for some— not all of your products if you want
- 10. You can assign one lot number to multiple locations or vice versa
This accomplishes the FIFO method and allows you to pick items that came in first or have an earlier expiration date, prompting you to pick older items first over newer items. Without a system that accommodates the mixed FIFO model the only way to accomplish this is by what we call physical inventory re-allocation. If you need to utilize FIFO to minimize losses in inventory, try to figure out the best way to accomplish it in your business without wasting resources.