First In, First Out (FIFO) is an inventory management principle widely used in warehouse operations. Under the FIFO approach, the items that enter the warehouse first (i.e., the oldest stock) are also the first ones to be picked, packed, and shipped out. This strategy ensures that older inventory is always moving out before newer stock, mitigating the risk of obsolescence, spoilage, or quality degradation over time.
How FIFO Works in a Warehouse Environment:
- Receiving and Labeling:
When goods arrive at the warehouse, they are checked in and recorded with their arrival date, batch number, or lot number. This information is used to track the age of each inventory unit.
- Storage Arrangements:
Warehouses are often organized so that older products are placed in easily accessible locations, with newer inventory stored behind or above them. This might mean placing earlier shipments at the front of a rack or shelf.
- Inventory Tracking:
Barcode scanning, radio-frequency identification (RFID), or warehouse management systems (WMS) help keep accurate records of each product’s “entry date.” Real-time visibility allows pickers to know exactly which items to pick first.
- Order Fulfillment (Picking):
When a customer order comes in, picking instructions direct staff to retrieve the oldest available items that meet the order requirements. Workers follow the FIFO principle by scanning and verifying lot or batch numbers to ensure they are choosing the oldest qualifying stock.
- Regular Rotation:
If inventory does not move quickly, the warehouse may physically rotate stock periodically. For example, employees may reposition pallets so that older inventory remains at the front of the rack, always ensuring first-received items are first to go out.
Benefits of the FIFO Method:
- Reduced Risk of Obsolescence or Expiration:
FIFO is especially important for products with limited shelf lives—such as food, pharmaceuticals, or certain chemicals—ensuring that items are sold or used before their expiration date.
- Higher Quality Assurance:
By continually moving the oldest stock first, warehouses minimize the chances of distributing stale, outdated, or spoiled goods to customers, maintaining product quality and brand reputation.
- Improved Inventory Accuracy and Predictability:
FIFO simplifies inventory counting and forecasting. Managers have a clearer picture of which items will likely move out next, making demand planning and purchasing decisions more accurate.
- Reduced Waste and Storage Costs:
By preventing items from lingering too long, FIFO cuts down on waste due to unsellable or expired inventory. This also helps control storage costs since fewer outdated items clutter warehouse space.
Use Case Example: A Dairy Products Distributor
Scenario:
A company distributes milk, cheese, and yogurt to various supermarkets. These dairy items have short shelf lives, and product freshness is critical to both their brand reputation and compliance with food safety regulations.
How FIFO Helps:
- Receiving and Labeling:
Each incoming pallet of milk is assigned a batch number and expiration date. Upon arrival, employees record this information in the WMS.
- Storage:
Employees place newly arrived dairy products behind or underneath older stock. Signage and digital inventory records ensure that pickers know where the oldest inventory is located.
- Daily Operations:
As supermarket orders arrive, pickers are instructed to choose the oldest milk cartons first, which are always placed at accessible locations. The WMS may display a warning if pickers try to select newer batches before clearing older ones.
- Outcome:
By following FIFO, the distributor ensures that milk delivered to the store is always as fresh as possible. They rarely have to deal with spoiled products remaining in the warehouse, which reduces waste, enhances customer satisfaction, and maintains the retailer’s trust.
Conclusion:
FIFO in warehouses is an essential practice for managing perishable or time-sensitive inventory. It prioritizes selling older stock first to maintain product quality, reduce waste, and streamline operations. With the right technologies and processes, implementing FIFO can lead to more efficient workflows, happier customers, and healthier bottom lines.