Exploring Inventory Management Methods

Efficient inventory management is vital to ensure smooth operations and customer satisfaction. Accurate stock ensures quicker order fulfillment, lowers waste, optimizes space, and leads to cost savings. There are numerous methods that are used to manage inventory flow. Let’s dive into some of the methods that determine the order in which items are stored, picked, and accounted for. 

First In, First Out (FIFO)

FIFO is a common inventory management method in which items that enter inventory earliest are the ones that are used first. The idea is that the oldest stock will be used before the newest stock, reducing the risk of products becoming too old to use. This method is great for perishable items that could get old such as food items, pharmaceuticals, or cosmetics. 

First Expired, First Out (FEFO) 

FEFO is a more specialized version of FIFO that prioritizes which products are picked first based on their expiration dates. While FIFO ensures that the oldest stock is used first, FEFO takes into account specific expiration dates for each item. FEFO allows businesses to minimize the risk of selling expired products, while upholding a high standard for quality. FEFO is utilized often in sectors dealing with products that have limited shelf lives. 

FIFO vs. FEFO

The main difference between FIFO and FEFO is simple: In FIFO, the items that are used first are the items that showed up into inventory first. In FEFO, the items that are used first are the items with the soonest expiration date. It is not guaranteed that the first items that come into inventory will be the first to expire, so it is important to note whether products require the FIFO or FEFO method. FIFO will be used in situations where products quickly become obsolete or are only popular in a specific season, giving them a limited shelf life. FEFO will be used for perishable goods with a strict expiration date. 

Last In, First Out (LIFO)

On the opposite end of the spectrum from FIFO and FEFO, LIFO is a principle in which the newest items are used first. This method tends to be used when the cost of acquiring inventory increases over time. LIFO is also the right choice for products that don’t expire, and only applies to products that don’t lose value over time. Companies can minimize tax burdens by using newer stock first, since higher-priced items are used before lower-priced ones. LIFO is typically used in industries where inventory costs tend to rise, like in the automotive industry or during high periods of inflation. Another use would be in the construction industry with items such as bricks that don't go bad. 

Placement of goods

Strategic placement of goods in the warehouse is just as important as knowing which inventory management method to use. When using FIFO, you will want to ensure that the goods that arrived in the warehouse first are in an easily accessible location so they can be picked and packed efficiently. With the FEFO method, goods with the nearest expiration dates should be accessible while goods with later dates can be stored away until needed. Both FIFO and FEFO require a large storage space and strong organization skills. LIFO makes product placement very simple, new products can simply be placed on top of old ones. 

The right inventory management method for your warehouse depends on what products you have. Most warehouses will use more than one method since each client has specific needs for their products. Regardless of the inventory management strategy being used, proper placement of goods in the warehouse is vital. Looking for a 3PL who has successfully implemented each of these inventory strategies? Contact Brandfox to learn more about strategies we employ to help our clients succeed.