Syahira Amira Khalid reposted this
ForbesBLK Member | Logistics/Supply Chain Management | +12 Years Driving Operational Excellence for Businesses | I Help Entrepreneur and Professionals to Turn Challenges into Growth Opportunities.
FIFO, LIFO, and FEFO are methods used in inventory management to track and manage the flow of goods in a business.♟️ I will explain each of them with examples and their importance: 🔸FIFO (First-In, First-Out): - FIFO is a method where the first items added to inventory are the first ones to be used or sold. - This method is often used for products with expiration dates, like food or pharmaceuticals. Example: Imagine a grocery store that follows FIFO. If they receive a shipment of milk cartons on different dates, they will sell the ones with the earliest expiration dates first. 🔹Importance of FIFO: - It helps ensure that older inventory is used or sold before newer inventory, reducing the risk of products becoming obsolete or spoiling. - It can result in more accurate cost tracking and is typically compliant with accounting standards. 🔸LIFO (Last-In, First-Out): - LIFO is the opposite of FIFO; it assumes that the most recently added items to inventory are expected to expired first before the first items thereby it has to be used or sold first. - LIFO is rarely used outside of accounting for tax purposes because it may not reflect the actual flow of goods. Example: Using the same grocer we store example, with LIFO, the store would sell the milk cartons with the latest arrival dates first. 🔹Importance of LIFO: - It can have tax advantages, as it may reduce taxable income by using the highest cost items first. - However, it may not be the best method for managing inventory in terms of product quality or physical flow, primarily due to its potential mismatch with the physical flow of goods. 🔸FEFO (First-Expired, First-Out): - FEFO is primarily used for managing goods with expiration dates, ensuring that items closest to expiration are used or sold first. - It's a specific application of FIFO. Example: In a pharmacy, FEFO is crucial for managing medications. Medications with the closest expiry dates are dispensed to patients first. 🔹Importance of FEFO: - It is essential for industries where product quality and safety are paramount, such as pharmaceuticals and food. - It helps minimize waste and the risk of selling expired products. In summary, the choice of FIFO, LIFO, or FEFO depends on the nature of the inventory and the specific goals of the business. Abdulrasheed Yakub ACISCM, ACIWM, PGLSCM Image from Annilogistics #fifo #lifo #fefo #warehousing #supplychainmanagement #scm #inventory #optimization
