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FIFO Inventory Management: What it is and Why it Matters

February 6, 2023Written by: Joe Osborne


First In, First Out (FIFO) is a widely used method for managing inventory in businesses, especially in industries such as retail, food and beverage, and manufacturing. This method ensures that the oldest items in a company's stock are sold or used first, reducing the risk of spoilage, obsolescence, and waste.

In this article, we will delve into the concept of FIFO, explain its benefits and drawbacks, and provide tips on how to implement it in your business.


What is FIFO Inventory Management?

FIFO inventory management is a method of tracking and selling items based on the order in which they were received. This means that the first items received are the first to be sold, and the last items received are the last to be sold.

For example, if a business receives a shipment of 100 apples and then another shipment of 100 apples a few days later, the first shipment of 100 apples will be sold first, before the second shipment. This ensures that older items are not left to spoil or become obsolete, reducing waste and increasing profitability.


Benefits of FIFO Inventory Management


  • Reduces waste: By selling or using the oldest items first, FIFO minimizes the risk of spoilage, obsolescence, and waste.
  • Increases efficiency: With FIFO, businesses can easily track their inventory, leading to a more efficient and organized inventory management system.
  • Improves customer satisfaction: By selling fresher products first, businesses can ensure that their customers receive the best quality products, improving customer satisfaction and loyalty


Drawbacks of FIFO Inventory Management


  • May lead to stockouts: If a business relies too heavily on FIFO, they may run out of stock of popular items, leading to stockouts and lost sales.
  • Complex to implement: FIFO can be complex to implement, especially for businesses with a large and diverse inventory.


How to Implement FIFO Inventory Management


  1. Assess your current inventory system: Before implementing FIFO, it is important to assess your current inventory system to determine if it is suitable for FIFO.
  2. Implement a system for tracking inventory: A system for tracking inventory is essential for successful FIFO implementation. This can be done through manual tracking or through the use of inventory management software.
  3. Train employees: It is important to train employees on the principles and procedures of FIFO, so they understand how to implement it correctly.
  4. Regularly review and adjust: Regularly reviewing and adjusting your FIFO system is key to ensuring its continued success. This may involve making changes to your tracking system or modifying your inventory management procedures.


In conclusion, FIFO inventory management is a widely used and effective method for managing inventory, reducing waste, and improving customer satisfaction. By following the steps outlined above, businesses can successfully implement FIFO and achieve better inventory management.

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