The field of logistics encompasses shipping, trucking and warehousing. Ultimately, logistics is all about figuring how to get what you need where you need it when you need it. One of the challenges in logistics is managing inventory as it sits in the warehouse and deciding which inventory items to ship out first. The FIFO method of warehouse management calls for pulling stock on a first-in, first-out basis.
Grocery store warehouses typically operate on the FIFO system for a very simple reason -- food spoils. By shipping out your oldest stock first, you increase the chance that it'll sell before it reaches its expiration date. This helps to reduce the amount of inventory that goes unsold, increasing the company's profits.
Mitigate Obsolescence Risk
Although most tangible goods don't spoil, they can go obsolete. High-technology companies use a FIFO system for logistics to ensure that they're turning over parts before they have a chance to be replaced by something newer, faster, better or cheaper. This practice can be used in just about any industry that has date-sensitive products.
One benefit of using FIFO in a logistics system is that quality control is relatively simple. Because you are shipping products out in the order that you receive them, you can easily track your deliveries back to when you received them. In the event that a product is bad, you know which supplier delivered it when. Although it's possible to do this with other inventory flow systems, FIFO simplifies the process.
The LIFO Alternative
An alternative to first-in first-out logistics is last-in, first-out shipping. LIFO is popular in accounting because it typically reduces profits by claiming the new (and usually higher) cost of goods sold as an expense against sales. It can also work in warehousing with non-date sensitive items or with items that grow in value over time. However, LIFO tends to lead to a warehouse full of stagnant stock, as opposed to FIFO, which helps ensure stock turnover.
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