FIFO vs FEFO: Here’s What You Need to Know
Effective inventory management is the backbone of a well-functioning supply chain. Two primary approaches for managing stock rotation are FIFO (First In, First Out) and FEFO (First Expiry, First Out). Although both systems focus on moving inventory efficiently, they serve different purposes and are better suited to specific industries and product types. Understanding the differences between FIFO and FEFO can help businesses like yours reduce waste, maintain product quality, and improve overall operational efficiency.
Let’s dive into what you need to know about FIFO vs FEFO.
FIFO (First In, First Out): What is It?
FIFO is a straightforward inventory management technique where the first items to enter stock are the first to be used, sold, or dispatched. It is based on the principle that older stock should be moved out before newer inventory is added to the workflow.
Key Features:
- Stock Rotation by Entry Date – Older products are sold or used before newer stock
- Common Industries – Retail, electronics, manufacturing, and industries dealing with non-perishable goods
- Main Focus – Preventing obsolescence of older products and ensuring inventory turnover in the order it was received
Benefits:
- Prevents overstocking – FIFO ensures that older products do not accumulate and get stuck in storage.
- Simpler implementation – FIFO can be managed using basic inventory tracking tools, making it easy for businesses to set up and manage.
- Financial clarity – Since older, lower-cost inventory is moved first, FIFO aligns well with accounting methods, helping businesses manage costs better.
Limitations:
- May not prioritize expiration dates – FIFO does not take into account products’ shelf lives, which can lead to wasted or expired stock, especially for perishable goods.
- Less suitable for time-sensitive products – If your business handles products that degrade in quality over time, FIFO might not be the most effective method.
FEFO (First Expired, First Out): What is It?
Key Features:
- Stock Rotation by Expiration Date – Products with the earliest expiration date are dispatched first, regardless of their arrival date
- Common Industries – Food and beverage, pharmaceuticals, cosmetics, and any industry dealing with perishable or time-sensitive goods
- Main Focus – Preventing waste by ensuring that products nearing expiration are sold or used first
Benefits:
- Minimizes waste – FEFO ensures that products nearing expiration are prioritized, reducing the chance of goods expiring in storage.
- Improves customer safety and compliance – For industries like healthcare and food, FEFO helps maintain compliance with safety regulations by ensuring expired goods are not sold or used.
- Boosts product quality – By shipping products before they expire, FEFO ensures customers receive fresher, higher-quality items.
Limitations:
- Complex management – Tracking expiration dates requires advanced inventory management systems to monitor stock effectively.
- Higher setup costs – Implementing FEFO may require businesses to invest in technology that can accurately track and rotate products based on expiration dates.
| Aspect | FIFO (First In, First Out) | FEFO (First Expired, First Out) |
|---|---|---|
| Stock Movement | Based on when products enter inventory | Based on expiration dates |
| Industries | Retail, manufacturing, non-perishables | Food, beverages, pharmaceuticals, perishables |
| Main Focus | Efficient stock turnover | Reducing waste from expired goods |
| Complexity | Simpler to implement | Reducing waste from expired goods |
| Best For | Non-perishable goods, long shelf-life products | Perishable goods, time-sensitive products |
When to Use FIFO?
FIFO is best suited for businesses that deal with non-perishable goods or products that do not expire quickly. It’s also ideal when inventory costs need to be closely aligned with sales for accurate financial reporting.
You can consider using FIFO if:
- Your business handles non-perishable goods such as electronics, clothing, or hardware.
- You want to ensure a smooth flow of older inventory without worrying about expiration dates.
- You need a simple inventory system that focuses on order-of-receipt stock movement.
When to Use FEFO?
FEFO is the better choice for businesses that deal with perishable goods or items with strict expiration dates. This method reduces waste and ensures compliance with safety regulations, especially in highly regulated industries.
Consider using FEFO if:
- Your business deals with perishable goods such as food, pharmaceuticals, or cosmetics.
- You need to prioritize products based on expiration dates to avoid spoilage.
- You require compliance with industry regulations that govern product safety and quality.
In a Nutshell
Both FIFO and FEFO have their strengths, and the right choice depends on your business needs. FIFO is ideal for managing long-lasting, non-perishable goods, simplifying inventory management while reducing obsolescence. FEFO, on the other hand, is essential for businesses dealing with perishable products or goods with strict expiration dates, ensuring product freshness, quality, and compliance with safety standards.
By understanding the differences between FIFO and FEFO, you can make an informed decision that suits your business and maximizes efficiency in your supply chain operations.
At TFI, we take pride in our in-house team that are trained and experienced in all aspects of inventory management. Our seamless operation at the warehouse is supported by a robust pallet racking system, ERP system, barcode scanners, RFID systems, and Warehouse Management System. All these and more are designed to give you peace of mind, knowing that your stock is managed efficiently while reducing waste and saving on costs.
Get in touch with us and let’s discuss your warehousing needs!
