The FIFO (First In, First Out) Method Explained and Its Benefits

Regardless of the products you offer, efficient inventory management is essential to running a successful business. This is even more important for industries where products are perishable or time-sensitive, such as beverages, pharmaceuticals and fashion. Ensuring the whole supply chain is optimised to fulfil and ship orders in line with not just your customers’ needs but also expiration dates and current trends is crucial. Ultimately, an effective inventory management system ensures operational efficiency and enhances both profitability and customer satisfaction. 

Among the different types of inventory management, one popular method that has been embraced by businesses of all sizes is FIFO. This “First In, First Out” methodology can streamline inventory control and it’s used by many warehousing and fulfilment companies. Below we have explored FIFO in more detail and listed some of its key benefits for businesses, no matter what products they sell.

What is FIFO?

FIFO (First In, First Out), is an inventory management system that ensures the oldest inventory is sold or used before the newer inventory. This method is particularly important for managing perishable goods or products with an expiration date, but it’s also beneficial for various other sectors as it assists with stock rotation. The main premise of FIFO is to minimise the risks of product spoilage, expiry or obsolescence, maintaining the freshness and relevance of inventory.

The FIFO inventory management strategy can also be beneficial for accounting purposes. It’s not just about the physical flow of goods but also a methodological approach to financial planning. By keeping track of the Cost of Goods Sold (COGS), you can more accurately calculate your gross profit and this information can be useful for numerous reasons. 

Benefits of FIFO Inventory Control for Businesses

As a tried and tested inventory control method, FIFO offers several strategic advantages for businesses looking to optimise their operations and improve their financial health. Here are some of the many reasons why many expert third-party logistics companies and smaller businesses alike use FIFO for inventory management; 

  • Reduced Waste and Cost Efficiency – FIFO helps businesses minimise waste by selling older inventory first, which is crucial for products with a limited shelf life. This approach reduces the amount of inventory that expires or becomes obsolete whilst sitting on a shelf in the warehouse, cutting down potential losses and improving cost efficiency. By systematically removing older stock, businesses can also prevent the accumulation of unsellable items, ensuring all inventory contributes positively to their bottom line.
  • Improved Cash Flow – By selling older inventory first, FIFO can help to improve the predictability of cash flow. It ensures that capital isn’t being tied up in unsold stock, freeing up resources for reinvestment or other operational needs. Not to mention, it can reduce warehousing costs by minimising the amount of storage space required. FIFO helps businesses maintain liquidity, which is essential for handling day-to-day expenses and responding to market opportunities quickly.
  • Enhanced Inventory Accuracy – Inventory control methods like FIFO enhance inventory accuracy by simplifying the tracking of goods. As older items are always sold or used first, inventory levels are easier to manage and the likelihood of errors in order tracking is reduced. This streamlined approach helps businesses maintain a clear view of their inventory levels, supporting things like demand forecasting and planning for reorder points. This is particularly true for seasonal products. 
  • Better Quality Control – FIFO naturally encourages the rotation of inventory, which can lead to improved quality control. This system ensures that out-of-date stock isn’t being delivered to customers, maintaining high satisfaction rates and reducing the likelihood of returns and complaints. Having a regular turnover of products also enables businesses to quickly adapt to changing market trends and customer preferences, maintaining a competitive edge in their industry.
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Prioritising FIFO in Warehousing 

Warehousing companies play a key role in implementing FIFO effectively. They use sophisticated inventory management solutions that support the FIFO method, enabling you to efficiently manage your inventory without the risk of ending up with outdated or irrelevant products which can’t be sold or shipped to customers. 


When outsourcing order fulfilment, you can trust that warehousing companies use advanced tracking technologies to ensure accurate management of inventory age. This not only supports FIFO, but also enhances overall inventory management, making it seamless. Many warehousing providers offer storage solutions that facilitate the physical management of FIFO too. This might involve specific shelving arrangements that allow older products to be accessed first or automated systems that move older stock to the front.


Improving Inventory Management with FIFO

It’s fair to say that FIFO is more than just an inventory management system, it’s a strategic tool that can enhance the operational efficiency and profitability of a business. By implementing FIFO, businesses can ensure their inventory is fresh and relevant, and customers remain satisfied with their deliveries, enhancing loyalty. If you’re looking for ways to streamline your inventory management, enlisting the help of a warehousing partner to introduce FIFO could be the key to ongoing success. 


Here at Spectrum, we provide a comprehensive range of 3PL warehousing and fulfilment services, and we can support your business with your inventory management needs. We pride ourselves on delivering a reliable service to businesses throughout Ireland, the UK and Europe, and our people, technology and expertise sets us apart. We can make the process of holding, storing and managing stock as straightforward as possible, and you can focus on growing your business whilst we take care of the rest. Don’t hesitate to contact us today to find out more about how we can help you with your business inventory.