FIFO
First In, First Out
FIFO (first in, first out) is a stock rotation rule that ships the oldest received units first. In a warehouse, it keeps stock from aging on the shelf. In accounting, FIFO is also a costing method that values goods sold at the cost of the earliest purchases.
How FIFO works in a warehouse
FIFO means the first stock received is the first stock shipped. If you received 300 phone cases in March and another 300 in May, the March units should go out before any May unit is touched.
To follow FIFO, the system needs to know when each quantity arrived. That usually means recording each receipt as its own lot or license plate, so the March pallet and the May pallet stay distinguishable even when they hold the same SKU. Allocation then picks the oldest one, and the picker scans to confirm it.
FIFO as a costing method
Accountants use FIFO to value inventory, and it is a separate decision from how you rotate stock. Suppose you bought 100 units at $2.00 and later 100 at $2.50, then sold 150. Under FIFO costing, the cost of goods sold is 100 × $2.00 plus 50 × $2.50, or $325, and the remaining 50 units are valued at $2.50 each.
You can rotate physically by expiry and still cost by FIFO, or the other way round. Your accountant chooses the costing method; the warehouse chooses the rotation rule that protects the product.
FIFO vs FEFO vs LIFO
FEFO ships the earliest expiry first and is the better rule when shelf life varies between deliveries. LIFO (last in, first out) ships the newest stock first. It suits goods that don't age, such as gravel or bulk steel stacked where the newest load is easiest to reach, and it is not allowed as a costing method under some accounting standards. The FIFO vs FEFO vs LIFO guide walks through when each fits.
Making FIFO work on the floor
FIFO is easy to set as a rule and easy to break in practice. These habits keep it honest.
- Record every receipt as a lot or license plate so ages stay separate.
- Avoid topping up a bin with new stock in front of old stock.
- Use flow racks or back-loading shelves where pickers take from the front.
- Have pickers scan the lot or LPN they take, so a wrong choice is caught at once.
How NextStock handles stock rotation
NextStock identifies stock by lot and license plate as well as SKU and location, so separate receipts stay separate. Its automatic allocation rules include FEFO for dated stock, whole-LPN and pick-face-first. When you need strict receipt-order rotation for goods without an expiry date, you can allocate a specific lot or LPN manually. See inventory management for how stock is identified.
Part of the NextStock warehouse glossary. Browse the full glossary