FIFO vs. FEFO - Choosing the Smart Inventory Control

Home > Blog > Smart Inventory Control: How FIFO & FEFO Methods Minimize Stock Losses for Business

Deadstock, obsolete inventory, and damaged stock are some of the terms that give us a threat in a jiffy. While these circumstances possess the power to increase operational costs for retailers, poor management can lead to a huge loss of both inventory and infrastructure.

Furthermore, the market witnessed accelerated sales in top categories, including FMCG, Fashion and Accessories, Health and Pharma, and Beauty and Personal care. So if you are retailing in these categories, then your stock rotation is a strong approach to negate the damage of stock losses.

This approach can enable retailers to streamline this pressing concern and control the movement of products in and out of their warehouses. In a nutshell, it’s all about managing the rotation of your inventory in the warehouse setup so that you don’t have to go through the losses.

Now the next question that comes to our mind is, how to actually resolve these challenges for the retailers? Let’s delve into two methods that can be employed to address this issue in detail!

FIFO & FEFO: A Brief Overview

In various industries, the concept of batching plays a crucial role in optimizing processes and maintaining efficiency. Batching refers to the practice of grouping items or tasks together based on specific criteria for processing or handling.

One common approach to batching is the use of FIFO (First-In-First-Out) and FEFO (First-Expiry-First-Out) methods. Let’s explore these two stock rotation methods commonly used in warehouses and retail businesses.

1. FIFO (First-In-First-Out)

In the FIFO method, you strive to sell the products that come into your warehouse first. By adopting this approach, you can effectively reduce the risk of products becoming obsolete over time. This way, you ensure that older inventory is sold before newer stock, maintaining a fresh and up-to-date product selection.

Check out how Upscalio implemented FIFO and successfully achieved an exceptional order fulfillment rate of over 99.99%.

[Must read: Overcome Inventory Challenges With FIFO Based Picking]

2. FEFO (First-Expired-First-Out)

As the name suggests, this pattern follows the selling of products that expire first. This method places significant emphasis on ensuring that items with earlier expiration dates are sold first. By following FEFO, you can guarantee the delivery of high-quality products to your customers, enhancing their satisfaction and trust in your business.

But what happens when you fail to follow these two methods?

Consequences of Failing to Follow FIFO or FEFO

Failing to adhere to the FIFO or FEFO methods can lead to several consequences, resulting in additional costs and challenges. Some of the potential negative outcomes include:

Increased stock expiration cost on the shelf
Premature obsolescence cost of inventory
Increased risk of product deterioration or pilferage
A surge in returns due to delivery of order returns
Additional labor and time required to locate products in the warehouse

Now that we are well aware of the costs you will have to suffer from if you don’t follow these stock rotation methods, let’s delve deeper into some of the most significant advantages that many leading businesses experienced after incorporating FIFO and FEFO methods into their daily warehouse operations.

Why Is Stock Rotation Best Practice in Inventory Management?

The stock rotation method is the practice of regularly replenishing and rearranging stock to optimize its efficiency and freshness. Here are four highly regarded advantages of implementing stock rotation methods:

1. Reduction of Obsolete Inventory

When the inventory becomes obsolete, it results in significant product losses and can adversely impact your business. By following FIFO and FEFO methods, you can mitigate the chance of exactly that and sell your products before they expire or become outdated.

2. Higher Rate of Customer Retention

If the stocks are rotated in the warehouse, the chance of customers getting low-quality products gets reduced. This improved the confidence within the organization, working efficiently towards achieving high profits and offering an enhanced post-purchase experience to customers.

3. Minimizing Inflation Impact

It’s very common for the inflation rate to go down and up in an economy. While following these two patterns will lead businesses to sell stocks that were produced earlier, contributing more toward business profitability.

4. Organized Warehouse Space

If the stock rotation methods are followed properly, warehouse operations become more streamlined. How? With two aisles to unload and load the stock, businesses can ensure that by following FIFO and FEFO, the redundant movement of inventory can be avoided appropriately.

Discover how Unicommerce’s agile expiry management propelled The Urban Company to achieve 8X growth.

Now, you might be wondering about the deciding factors in choosing between FIFO and FEFO.

FIFO vs. FEFO – Which Method Is Best Suited for Your Business?

When it comes to managing your inventory, selecting the appropriate method can significantly impact the efficiency of your business. Understanding the industry preferences of each method can help you make an informed decision for your specific business needs.

FIFO Method:

If your business involves dealing with FMCG, fashion products, or consumer electronics, FIFO is the recommended method for you. This method works particularly well for items that are stocked seasonally or have a limited shelf life. Moreover, it also works best with products having short demand cycles like fashion.

FEFO Method:

Similar to FIFO, the FEFO method is commonly used for businesses handling food items, medicines, cosmetics, or any other products with limited expiration dates. With FEFO, the focus shifts from the order of arrival to the earliest expiration date. This method ensures that items with the closest expiration dates are used or sold first, reducing the risk of products becoming obsolete or unsellable.

Discover how stock rotation methods like FIFO and FEFO facilitated The Man Company in achieving seamless batch-level traceability.

Take Action to Minimize Stock Losses Today!

To conclude the same, now you know how important it is to implement FIFO and FEFO methods if you actually want to reduce stock losses and streamline your entire supply chain. Using a robust and stable inventory management software and warehouse management system, you will be able to do exactly that. While it will allow you to follow the methods aggressively, the efficiency of automation will enable you to reduce any further discrepancies while making batches and sorting them.

Additionally, you also get to enjoy plug-and-play e-commerce integrations across multiple sales channels, managing crucial business tasks, such as returns management and cycle counts. With a comprehensive solution in place, you can mitigate stock losses while enhancing the efficiency and accuracy of your supply chain management.

Related read:

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Smart Inventory Control: How FIFO & FEFO Methods Minimize Stock Losses for Business