The FIFO method in warehouses: optimize your inventory management for efficient BtoB logistics

In an economic environment where operational efficiency has become a strategic issue, inventory management represents a crucial performance driver for businesses. Among the various inventory management methods, the FIFO method (First In, First Out) stands out as an essential reference, particularly adapted to the challenges of modern logistics. Learn how this approach can transform your supply chain and generate significant gains for your business.

What is the FIFO method?

Definition and fundamental principles

The FIFO method, an acronym for “First In, First Out”, is based on a simple but effective principle: the products that enter the warehouse first are the first to leave. This chronological approach to inventory management ensures optimal turnover of goods and considerably limits the risks associated with the obsolescence or expiration of products.

In practice, this means that an item received on 1 March will be used or sold before an identical item received on 15 March. This method generally reflects the actual physical flow of goods in the warehouse, creating consistency between administrative management and operational reality.

Application in various sectors of activity

While the FIFO method is particularly popular in sectors handling perishable products (food, cosmetics, pharmaceuticals), it is also relevant for many other areas:

• Fashion and accessories : prevention of the obsolescence of seasonal collections
• Electronic products : managing rapid innovation cycles
• Cars and new mobilities : inspection of spare parts and components
• Catering and hotels : optimization of consumables and hospitality products

The strategic advantages of the FIFO method

Reducing the risks of deterioration and obsolescence

One of the main advantages of the FIFO method lies in its ability to minimize losses associated with product deterioration. By ensuring that the oldest items are used as a priority, this approach makes it possible to:

• Significantly reduce waste and unsold items
• Limiting the costs associated with expired or obsolete products
• Improving the company's environmental footprint

These benefits are particularly significant in a context where approximately 14% of food is lost each year before even reaching the market, representing an estimated loss of 400 billion dollars worldwide.

Optimization of warehouse space

The FIFO method promotes the smooth movement of goods within the warehouse. This dynamic has several advantages:

• Regularly freeing up space for new goods
• Reduction of unused or under-optimized storage areas
• Better spatial organization facilitating daily operations

For businesses facing space constraints or wishing to optimize their real estate costs, adopting this method can generate substantial savings.

Improving quality and customer satisfaction

By ensuring that the freshest or most recent products are delivered to customers, the FIFO method contributes directly to improving the customer experience:

• Reduction in product quality-related returns
• Reinforcing the brand image
• Increased customer loyalty

This qualitative dimension is particularly important for companies positioned in premium segments or working with demanding customers.

Regulatory compliance and enhanced traceability

In many sectors subject to strict regulations (food, pharmaceutical, cosmetics), the FIFO method facilitates compliance with legal requirements:

• Optimized traceability of batches and expiration dates
• Simplified management of product recalls if necessary
• Precise documentation of goods flows

Practical implementation of the FIFO method in warehouses

Optimal layout of storage space

The effectiveness of the FIFO method is largely based on the physical organization of the warehouse. Several layout solutions facilitate its application:

• Dynamic shelving : equipped with inclined rollers allowing products to slide naturally forward when an item is removed
• Drive-Through Compact Racks : allowing access to the pallets from both ends of the rack
• Shuttle shelving systems : automating the movement of pallets according to the FIFO principle

This equipment, although representing an initial investment, quickly generates efficiency gains and reduces handling errors.

Digitalization and automation of processes

The digital transformation of logistics offers major opportunities to optimize the application of the FIFO method. Modern technological solutions make it possible to:

• Track stock movements and entry dates in real time
• Automate sampling decisions according to the FIFO rule
• Generate alerts for products nearing their use-by date
• Analyze performance and identify areas for improvement

Our Stockoss platform integrates these advanced features, allowing a 95% reduction in delivery errors and a 50% reduction in time on operational processing.

Team training and involvement

Beyond the technical aspects, the success of the implementation of the FIFO method depends heavily on the adherence of operational teams:

• In-depth training in the principles and advantages of the method
• Establishment of clear and documented procedures
• Regular feedback on performance and improvements
• Valorization of optimization initiatives proposed by employees

The limits of the FIFO method and their solutions

Adapting to price fluctuations

One of the potential drawbacks of the FIFO method concerns its sensitivity to price changes, especially during periods of inflation. By valuing inventory at the oldest costs, this approach can:

• Underestimating the cost of replacing products
• Impact the profit margin during a period of rising prices
• Complicating the establishment of consistent selling prices

To get around this difficulty, many businesses are adopting a hybrid approach, combining FIFO physical management with a different accounting valuation.

Managing low-turnover products

For items with low turnover or non-perishable products, the FIFO method may seem less relevant. In these specific cases, adaptations are necessary:

• Segmentation of stock according to product characteristics
• Application of differentiated rules according to categories
• Implementation of special monitoring for slowly rotating references

Complexity in multi-site logistics environments

In organizations with multiple warehouses or storage points, consistently applying the FIFO method can be complex. The solution lies in:

• The adoption of a centralized information system
• Standardization of processes across the entire logistics network
• The use of harmonized performance indicators

Alternatives and complements to the FIFO method

The LIFO method (Last In, First Out)

Unlike FIFO, the LIFO (Last In, First Out) method favors the use of products that were most recently in stock. This approach may be relevant for:

• Non-perishable and homogeneous products (construction materials, raw materials)
• Environments where accessing the most recent inventory is easier
• Inflation contexts where LIFO accounting valuation can have tax advantages

However, this method has major drawbacks, including the risk of the oldest stocks becoming obsolete and its non-compliance with certain international accounting standards.

The FEFO method (First Expired, First Out)

For products whose expiration date is critical, the FEFO method (First Expired, First Out) is an interesting alternative or complement to FIFO. This approach:

• Prioritize products based on their expiration date rather than their entry date
• Optimizes the management of products with a limited lifespan
• Further reduces the risk of losses due to missed dates

Do you want to optimize your inventory management with the FIFO method? Contact our experts for a personalized audit of your logistical needs.

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