FIFO vs FEFO: Which Method Is Best For Your Business?
While both FIFO and FEFO have their respective benefits, one will surely matter more to you depending on the products you sell.
For inventory management best practices, stock rotation is right near the top. At its core, stock rotation is a strategy that helps you to ease the problem of stock loss. It’s about organizing your stock in a way that allows you to avoid loss through expiration or obsolescence.
There are two main stock rotation or inventory maintenance methods that are worth noting: First-In, First-Out (FIFO), and First-Expired, First-Out (FEFO). Let’s look at the core differences:
FIFO Stock Rotation Method
What is First-In, First-Out?
The FIFO method means you aim to sell the products that arrive first in your store. Slightly older products are placed at the front of the shelf, newer products near the back.
You would expect items in front will be the first items out. That’s especially true if customers are in a rush and want to grab the first product off the shelf.
A well displayed shelf goes a long way to persuading your shoppers that all of your products are worth buying.
What are the benefits of FIFO?
For one, it allows you to avoid the problem of dead stock.
By using a FIFO method, you avoid the problem by selling inventory that arrives first. As you arrange it accordingly on your shelf, you shouldn’t need to worry about facing dead stock.
Secondly, it reduces the impact of inflation.
FIFO reduces the impact because you’re selling your oldest items first. If you assume that inflation is constant, the purchase price of older inventory is lower than that of the stock you bring in later.
Who should use the FIFO method?
When choosing this method, one of the deciding factors is the type of products you sell. It works well if you stock seasonally items, fresh food or have a policy of displaying and selling older stock first.
It also works best if you stock products that have short demand cycles, such as clothes where styles can quickly become outdated.
FEFO Stock Rotation Method
What is First-Expired, First-Out?
While First-in, First-Out is the most common used stock rotation method, a second accepted method is First-Expired, First-Out (FEFO).
FEFO is an approach to dealing with perishable products or those with expiry dates that begin at your warehouse and ends at the store. It’s the expiry or sell-by date that triggers this process.
Instead of immediately putting products at the back of the shelf, you first check the expiry dates. Then place those items with the shortest shelf-life near to the front, if not directly at the front, so customers will tend to buy them first.
Assigning expiry dates to batches allows everyone in the supply chain know what’s happening right up to when your product reaches the shelf. With a robust inventory management system that tracks the information in place, you’ll know exactly when to push stock from your warehouse to the store effectively.
What are the benefits of the FEFO method?
One benefit of following FEFO is that it allows you to guarantee product quality, which leads to customer satisfaction and a boost in reputation.
For example, let’s say you sell Dairy products. Using the FEFO method will ensure that you sell these products either by their sell-by date or before. Your customers will know when they buy your products, they will receive products of high quality.
Similar to FIFO, following the FEFO method allows you to avoid dead stock. While FIFO refers to dead stock at store level, FEFO helps avoid obsolete inventory at a warehouse level.
A third benefit is cost reduction. By following it, you can reduce the cost of stock expiring on your shelf, plus the cost of collateral damage to the brand name.
Who should follow the FEFO method?
The ‘E’ in FEFO – Expired – gives its main purpose away. Therefor it’s best to use the FEFO method if you sell perishable goods, food and beverage industry, or a pharmacy where offering a product past its expiry date can have serious consequences.