FIFO
Definition
First In, First Out: a rotation and valuation method where the oldest inventory is used or sold first. It keeps stock fresh physically and matches oldest costs to current sales in accounting.
In Practice
FIFO operates on two levels. Physically, it is a rotation discipline: pick the oldest pallet first so nothing ages in the back of the rack. Financially, it is a cost-flow assumption: cost of goods sold reflects the oldest purchase costs, so in inflationary periods FIFO reports higher margins and higher-valued ending inventory than LIFO.
For planners and warehouse teams, physical FIFO matters most for anything that degrades: food, chemicals, batteries, even cardboard packaging that yellows. Enforcing it requires location design and system support, such as gravity-flow racks, lot-date capture at receiving, and WMS picking logic that directs operators to the oldest lot.
Example: a snack distributor receives production lots weekly. Its WMS allocates picks by receipt date, so a lot received on the 3rd ships fully before the lot from the 10th is touched, keeping the average remaining shelf life at retail above the 75 percent freshness threshold its customers demand.
Related Terms
Last In, First Out: an inventory accounting method where the most recently acquired stock is expensed first. Under inflation it raises cost of goods sold and lowers reported profit and taxes.
FEFOFirst Expired, First Out: a picking rule that ships the stock with the earliest expiration date first, regardless of when it was received. It is the standard rotation method for perishable and dated goods.
Slow-Moving InventoryStock that sells or is consumed at a much lower rate than expected, sitting in the warehouse far longer than average. It still has demand, unlike dead stock, but turns too slowly to justify its inventory level.