In inventory management, businesses must ensure that products are stored, rotated, and sold efficiently to prevent waste and maintain product quality. Two commonly used inventory management methods are FIFO (First In, First Out) and FEFO (First Expired, First Out).Both FIFO and FEFO help businesses minimize losses, optimize stock rotation, and maintain product quality. But what are the differences between these methods, and when should each one be used? This topic will explain FIFO and FEFO, their advantages, and how businesses can apply them effectively.
What Is FIFO (First In, First Out)?
Definition of FIFO
FIFO stands for First In, First Out, meaning that the oldest stock (first in) is sold or used before newer stock (last in). This system ensures that inventory moves in a continuous flow, reducing the risk of obsolete or expired products.
How FIFO Works
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When new inventory arrives, it is added to the back of the storage area.
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The oldest stock is used or sold first before newer stock is touched.
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The process repeats to ensure proper product rotation.
Industries That Use FIFO
FIFO is widely used in industries where product freshness is important, such as:
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Food and Beverage: Ensures that perishable items are sold before they expire.
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Retail: Helps prevent outdated products from staying too long on store shelves.
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Pharmaceuticals: Ensures that medications are dispensed before they become ineffective.
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Manufacturing: Reduces the risk of outdated raw materials affecting product quality.
Advantages of FIFO
✅ Reduces product waste by using older stock first.
✅ Ensures customers receive fresh products.
✅ Prevents financial losses from expired or outdated goods.
✅ Easy to implement and track using inventory management software.
Challenges of FIFO
❌ Storage space may be needed for proper rotation.
❌ Requires regular stock checks to maintain proper flow.
What Is FEFO (First Expired, First Out)?
Definition of FEFO
FEFO stands for First Expired, First Out, meaning that the products closest to their expiration date are used or sold first, regardless of when they were received. This method is essential for industries where expiration dates determine product usability.
How FEFO Works
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Inventory is organized based on expiration dates, not purchase order dates.
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Products expiring sooner are moved forward for immediate use or sale.
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Newer products with later expiration dates are stored behind older ones.
Industries That Use FEFO
FEFO is commonly used in industries that deal with perishable goods and time-sensitive products, such as:
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Pharmaceuticals: Ensures that medicines and vaccines are used before they become ineffective.
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Food Industry: Helps supermarkets, restaurants, and warehouses manage perishable goods efficiently.
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Cosmetics: Prevents expired skincare and beauty products from being sold.
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Chemical and Medical Supplies: Ensures chemicals and diagnostic tools are used before they degrade.
Advantages of FEFO
✅ Minimizes expired product waste by prioritizing expiration dates.
✅ Improves customer safety by preventing the sale of expired goods.
✅ Enhances compliance with health and safety regulations.
✅ Ideal for businesses handling perishable or regulated products.
Challenges of FEFO
❌ Requires strict inventory tracking and control.
❌ More labor-intensive as employees must constantly check expiration dates.
Key Differences Between FIFO and FEFO
| Feature | FIFO (First In, First Out) | FEFO (First Expired, First Out) |
|---|---|---|
| Basis of Rotation | Stock entry date | Expiration date |
| Main Goal | Sell older stock first | Sell items before expiration |
| Best for | Long-shelf-life items | Perishable or regulated goods |
| Implementation | Simple and widely used | Requires close monitoring of expiration dates |
| Risk of Waste | Lower, but still possible | Lower if expiration dates are closely monitored |
When to Use FIFO vs. FEFO
Use FIFO When:
✔️ Selling non-perishable or long-shelf-life items (electronics, clothing, furniture).
✔️ Managing raw materials in manufacturing that do not expire quickly.
✔️ Maintaining steady inventory turnover without strict expiration tracking.
Use FEFO When:
✔️ Dealing with perishable goods, pharmaceuticals, and cosmetics.
✔️ Ensuring compliance with health and safety regulations.
✔️ Reducing the risk of selling expired or unsafe products.
How to Implement FIFO and FEFO in Inventory Management
Both FIFO and FEFO require good organization, tracking, and technology for effective implementation. Here are some best practices:
1. Organize Storage Areas Efficiently
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Use a clear labeling system for FIFO and FEFO items.
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Arrange stock so that older or soon-to-expire products are in front.
2. Use Inventory Management Software
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Track stock movement and expiration dates in real-time.
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Automate alerts for items that need to be sold or used soon.
3. Train Employees on Proper Stock Rotation
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Ensure warehouse and retail staff follow FIFO or FEFO guidelines.
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Regularly review stock handling procedures to minimize errors.
4. Conduct Regular Inventory Audits
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Perform routine checks on stock levels and expiration dates.
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Remove expired or damaged items to avoid customer complaints.
5. Implement Barcode and RFID Systems
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Use barcode scanners to track stock entry dates (FIFO) and expiration dates (FEFO).
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Improve accuracy in large warehouses or retail stores.
Common Mistakes in FIFO and FEFO Management
Mixing FIFO and FEFO products incorrectly: Can lead to product spoilage or lost sales.
Neglecting stock audits: Increases the risk of expired or outdated inventory.
Poor organization of storage areas: Makes it difficult to follow FIFO and FEFO properly.
Not training employees on inventory rotation: Leads to mismanagement and financial losses.
Both FIFO and FEFO are essential inventory management methods that help businesses reduce waste, improve efficiency, and ensure product quality. While FIFO is ideal for products with long shelf lives, FEFO is crucial for perishable and time-sensitive goods.
By implementing the right inventory rotation strategy, using technology, and training staff, businesses can maintain a well-organized, cost-effective, and customer-friendly supply chain.