There are two main stock rotation or inventory maintenance methods that are worth noting: First-In, First-Out (FIFO), and First-Expired, First-Out (FEFO).
FIFO stands for First In, First Out, this is when the stock that was first in the warehouse should be taken out first and used first. This will help ensure that the least amount of food will pass its expiration date. On the other hand, FEFO stands for First Expired, First Out.
First Expired, First Out (FEFO) is a term used in field inventory management to describe a way of dealing with the logistics of products that have a limited shelf life. These items include perishable products or consumer goods with a specified expiration date.
The FEFO principle means that products with the fastest expiry date should be released first. This strategy contributes to both minimising losses due to out-of-date products and is particularly important in industries where freshness and timeliness are key to the quality of the goods on offer.
Last in, first out (LIFO) is a method used to account for inventory. Under LIFO, the costs of the most recent products purchased (or produced) are the first to be expensed.
FEFO (First Expired, First Out) revolutionizes how businesses handle their inventory by prioritizing products based on their expiration dates. This intelligent approach to stock management ensures optimal product quality while minimizing waste and maximizing efficiency.
The full form of FEFO is First-Expired, First-Out, meaning the inventory expiring first is sold or used before newer stock. Similar to FEFO, FIFO stands for First-In, First-Out, i.e. the items that arrived first in the warehouse are consumed before the newer items.
FEFO (First Expired, First Out), FIFO (First In, First Out), and LIFO (Last In, First Out) are inventory management methods, each suited to different operational needs and regulatory environments. FEFO is the most compliant method for pharmaceuticals and other products with expiration dates.
Consider a grocery store stocking milk with varying expiration dates. Milk cartons received on April 1st expire on April 10th, while those received on April 5th expire on April 15th.
FiFo means "First-In, First-Out" and is a method used in inventory management to ensure that the first items entering an inventory are the first ones to leave when it comes time for shipping or sale. This helps to prevent wasting resources on old products and ensures that customers receive the freshest stock possible.
A stock keeping unit—or SKU for short—is a code that helps ecommerce sellers identify products in their inventory. SKUs are usually made up of 8 to 10 letters and numbers. They make it easier to keep track of stock throughout the selling process.
Other names are often used: Independent Clock FIFO vs. Common Clock FIFO or Asynchronous FIFO vs. Synchronous FIFO. The "baseline FIFO" that was presented on the previous page is a dual-clock FIFO.
Grocery store stock is a common example of using FIFO practices in real life. A grocery store will usually try to sell their oldest products first so that they're sold before the expiration date. This helps keep inventory fresh and reduces inventory write-offs which increases business profitability.
FIFO results in higher profits during inflation because it uses older, cheaper inventory for Cost of Goods Sold (COGS), increasing net income. LIFO, by using more recent, higher-cost inventory, results in lower profits, reducing taxable income. Both methods affect profitability and inventory value on the balance sheet.
What is LIFO? Last-in, first-out (LIFO) is another technique used to value inventory, but it's not one commonly practiced, especially in restaurants. This method is often used for non-perishable goods but is not ideal for food products, which are usually perishable with limited shelf life.
In the world of retail-related acronyms, SKU is likely one that you've heard a million times, but you may not know the meaning. SKU stands for “stock keeping unit,” and, as the name suggests, it is a number (usually eight alphanumeric digits) that retailers assign to products to keep track of stock levels internally.
Products are arranged either chronologically or based on expiration dates, ensuring that older stock is picked first. To facilitate this, newer items are stored behind older ones, streamlining inventory rotation and minimizing waste.
Economic order quantity (EOQ), also known as financial purchase quantity or economic buying quantity, is the order quantity that minimizes the total holding costs and ordering costs in inventory management.
LIFO understates profits for the purposes of minimizing taxable income, results in outdated and obsolete inventory numbers, and can create opportunities for management to manipulate earnings through a LIFO liquidation. Due to these concerns, LIFO is prohibited under IFRS.
A cost sheet is a formal documentation of the fixed, variable, direct, and indirect costs a business incurs from start to finish in its production process. Based on this information, a company can determine the total production cost and fix the price per item for the commodities.
“ASIN” stands for “Amazon Standard Identification Number.” It's a unique 10-character alphanumeric code assigned to every product listed in the Amazon store. Think of it as Amazon's own barcode system, helping to organize and track millions of products around the world.
A UPC code, which stands for Universal Product Code, is a series of black lines that help identify a product. This symbol is encoded with a series of numbers known as the GTIN, which makes up a complete barcode. The UPC is scanned at the point of sale, along with these lines and digits.
An inventory cycle count is a process that requires you to count a small amount of your inventory at a specific time, usually on a set day, without handling your entire stock in one go. It's a type of inventory auditing method that ensures your inventory is accurate and up to date at all times.
