Definition
FIFO (First In, First Out) is an inventory management method in which the oldest stock received is the first to be picked and shipped. It ensures that inventory is rotated so earlier lots are used before later lots. FIFO is the standard method for most perishable goods, pharmaceuticals, food products, and any inventory with expiration dates. It is also the default accounting method under GAAP for inventory valuation in most industries. The opposite is LIFO (Last In, First Out), which is rarely used operationally and has specific tax implications. FEFO (First Expired, First Out) is an extension of FIFO that prioritizes lot expiry date over receipt date — used when lots of the same product may have different expiry dates.
Why It Matters
FIFO reduces write-offs from expired or obsolete inventory by ensuring older stock moves first. Without FIFO discipline, back-of-warehouse locations accumulate inventory that was received early but never picked because newer stock was placed in front. This "last-in, never-out" pattern is responsible for a large share of distributor dead stock. Inventory Optimization Tool →
Frequently Asked Questions
What is FIFO in inventory management?
FIFO (First In, First Out) means the inventory received first is also shipped first. In a warehouse, this requires older stock to be positioned where pickers reach it before newer stock. It prevents inventory from aging on shelves and reduces write-offs from expiry or obsolescence.
What is the difference between FIFO and FEFO?
FIFO (First In, First Out) prioritizes inventory by receipt date — the oldest received is picked first. FEFO (First Expired, First Out) prioritizes by expiry date — the lot expiring soonest is picked first, regardless of when it was received. FEFO is used when multiple lots have different expiry dates.
Is FIFO required by GAAP?
GAAP allows both FIFO and LIFO for inventory accounting. Most manufacturers and distributors use FIFO or weighted average cost. LIFO is not permitted under IFRS. FIFO accounting typically results in higher reported inventory value and higher taxable income during inflationary periods.