FIFO Method: What It Is and How to Apply It in Your Warehouse
The FIFO method (First In, First Out) is an inventory management strategy that prioritizes shipping out the oldest stock in the warehouse before the most recently received goods. It’s one of the most widely used techniques in logistics, especially in sectors with perishable products or items prone to becoming obsolete.
What the FIFO method is
It’s an inventory rotation criterion based on arrival order: the product that enters the warehouse first is also the first to ship out to the customer or into production. It’s also known as PEPS in Spanish, and its goal is to prevent older stock from piling up while more recently received units get shipped out ahead of it.
How the FIFO method works
The principle behind this technique is simple: the first unit that enters the warehouse is also the first to leave. This ensures no product sits in storage indefinitely while newer stock ships out ahead of it.
For it to work correctly, the warehouse needs a layout and shelving system that physically supports that order, so operators can access the oldest stock first without having to move the rest of the inventory.
FIFO versus LIFO: the key difference
The opposite method is LIFO (Last In, First Out), where the most recently received products ship out first. The choice between the two depends on the type of product and the business goal:
| Method | Shipping priority | Typical use |
|---|---|---|
| FIFO | Oldest product | Perishables, products with expiry dates or obsolescence risk |
| LIFO | Most recent product | Non-perishable materials, specific accounting contexts |
During inflationary periods, some companies use the LIFO criterion for accounting purposes because it reflects more recent costs in the sale price, although this has no direct relationship with the physical rotation of inventory in the warehouse.
Which industries apply FIFO
This rotation system is especially relevant in:
- Food: fresh products, dairy, and perishables with a near expiry date.
- Pharma and cosmetics: medicines and products with a limited shelf life, subject to traceability regulations.
- Fashion and technology: items that lose commercial value quickly by going out of season or becoming obsolete.
- Retail and supermarkets: daily replenishment management in-store, not just in the central warehouse.
Advantages of applying it
- Minimizes obsolete inventory and losses from expiration.
- Improves stock rotation, consistently freeing up storage space.
- Makes inventory control easier, with clearer visibility into which products have been in storage longest.
- Reduces the risk of having to write off stock with no commercial value.
How to implement it step by step
Rolling out this methodology isn’t just a decision, it requires adjusting specific processes:
- Analyze which products need it: not every catalog item requires the same level of rigor. Prioritize items with expiry dates or a high risk of obsolescence.
- Design the warehouse layout accordingly: aisles and shelving should allow access to the oldest stock first without moving the rest.
- Label with entry date or batch: without a clear record of when each unit arrived, there’s no way to apply rotation consistently.
- Train the warehouse team: the method fails if staff don’t follow the criterion systematically on every pick.
- Automate control with technology: a manual system is prone to errors in large catalogs. This is where management software comes in.
When a single warehouse isn’t enough anymore
A WMS handles rotation well within the four walls of one warehouse: it flags which unit should ship first based on entry date, without relying on operator judgment. But what happens when that same reference is managed across three different warehouses, each with its own rotation logic and no communication between them?
That’s where the system starts to break down in practice, even though it works perfectly on paper in each warehouse individually: one batch can sit weeks too long at one site while another is about to receive fresh stock of that same product. Supply chain visibility is what closes that blind spot, giving a combined picture across all warehouses at once, not a correct picture of each one in isolation.
This combination, a WMS for physical execution and real-time visibility for coordination across warehouses, is what allows this methodology to scale to complex operations without losing control.
Frequently asked questions
What does FIFO stand for?
FIFO stands for First In, First Out. It describes an inventory rotation strategy where the oldest product is the first to ship out.
How is it different from the FEFO method?
FEFO (First Expired, First Out) prioritizes shipping based on the nearest expiry date, not the order of arrival. For products with variable expiry dates within the same batch, FEFO offers more precise control than simply going by receiving date.
Can it be applied without a WMS system?
Yes, it’s possible to manage it manually with date labeling and operational discipline, but the margin for error grows considerably as the catalog or daily operation volume increases.
Is it mandatory in any industry?
There’s no general legal requirement, but in sectors like pharma or food, traceability and food safety regulations make applying an age-based rotation criterion practically essential to meet health requirements.
Does it affect inventory accounting?
Yes. For accounting purposes, valuing stock outflows based on the cost of the oldest units (versus the LIFO criterion) can have a different impact on reported profit, especially during periods of price fluctuation.