FIFO and LIFO methods are used in the management of warehouse resources. However, there are significant differences between them that affect the way companies operate daily. Let’s check what the main differences are and how to decide which method is better.
What is the LIFO method?
LIFO stands for Last In, First Out. In practice, the last one to reach the warehouse will leave it first. This method affects how the warehouse is managed, and individual transactions are booked.
The LIFO method is used for goods with a very long shelf life. It is used less frequently than FIFO and mainly in the case of smaller warehouses, as it allows easy access to the goods sold. It is also worth mentioning that it can work well in times of high inflation. It increases the prices of materials and production, so it is worth releasing those products purchased at a higher price (i.e., later) as soon as possible.
What is the FIFO method?
FIFO, or First-In, First-Out, is the opposite of LIFO. It is also called the Earliest Price Principle or the Queue Method. It is based on posting the issue in order from the item that entered the warehouse at the earliest. Many companies use it, especially those dealing with goods with short expiration dates. Its advantage is more excellent order in the warehouse and a minimum of time when the product is stored. Another advantage is the simplicity and orderliness because the goods accepted at the earliest are kept from such a warehouse.
FIFO and LIFO methods – which one to choose?
FIFO and LIFO methods differ significantly. However, it depends on the company and its specifics of operation which one will be chosen. In this regard, it is worth considering the advantages and disadvantages of each of these approaches, which we mentioned a little above. The type of goods is also necessary. If it has a short shelf life, it is essential to release the oldest products from the warehouse faster.
However, this decision can be made later. So it’s worth choosing the right warehouse management software, such as Omnicommerce For Retail. One of its modules allows you to manage the warehouse, but it supports both the LIFO and FIFO methods. It was therefore created to give flexibility in handling the warehouse and adjust it to your needs. Additionally, it allows for:
- managing multiple warehouses,
- the ability to centrally view stock levels,
- easy and intuitive reporting,
- fast order processing.
Other factors influencing the decision to choose between FIFO and LIFO:
- demand characteristics – in the case of stable and predicted demand, FIFO is usually more favorable, as it makes older goods sell first,
- sales strategies – each company may have a slightly different sales strategy that will affect which method works best,
- storage costs – inventory handling and product storage prices also affect the best approach.
FIFO and LIFO methods are best known for inventory management. Therefore, they significantly impact the efficiency of the company’s operations.