Overview of last-in-first-out (LIFO) and first-in-first-out (FIFO) storage strategies
LIFO and FIFO refer to two basic inventory management strategies used in distribution centers and warehouses. The terms refer to the way inventory is placed into and removed from storage.
What is FIFO / ‘First in, first out’?
FIFO assumes that the first (oldest) stock put into storage should be the first to be sold or used. This means that the most recent (newest) stock remains in storage until the older stock has been used up. It is often used to avoid possible obsolescence of stock, especially for perishable goods or those with a limited shelf life.
Storage techniques that use the FIFO principle include:
- pallet flow racks
- container flow racks
What is LIFO / ‘Last in, first out’?
LIFO means that the most recently stored (newest) stocks are the first to be used or sold. This means that older stocks remain in the warehouse until the newer stocks have been used up. LIFO is used less frequently and can lead to tax advantages in certain cases, since the newer, more expensive stocks are sold first and thus the cost base is kept higher.
Storage techniques that use the LIFO principle include:
The choice between FIFO and LIFO depends on various factors, including the type of inventory, price fluctuations and tax implications. In warehouse types such as high-bay warehouses, the application of the method also depends on factors such as the storage technology used.
For more information on a possible type of handling, see cross-docking.
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