FIFO vs LIFO vs FEFO: Choosing the Right Inventory Storage Strategy

In this fast paced business world, inventory is the pathway on which your business runs. Effective inventory management is one of the significant factors to boost your business's success. Markets today are quite competitive. Effective inventory management can help businesses thrive. While excessive inventory can make processes daunting, proper storage and inventory maintenance can streamline operations. Only an effective inventory management system can meet market demands. It can also ensure the timely fulfillment of customer orders. So, no matter your business size, a good inventory storage strategy is vital. This blog will take you into the world of FIFO, LIFO, FEFO, and other respective solutions to make an informed decision and be on the side of success. Let’s find out these strategies!

What Is An Inventory Storage Strategy?

Inventory storage refers to the process of managing goods until they are sold or used. So, an inventory storage strategy means organizing and managing stocks in a storage unit or a warehouse. In this process, it is important to keep a track of the quantity and location of inventory. Also, it includes measures to protect the stocks from damage or loss.

Inventory is a key part of supply chain management. It can affect the business's overall status. An effective inventory strategy is made by assessing various factors. These include the product's characteristics, demand, and storage methods. While it becomes important to ensure property storage mechanisms, some certain methods and solutions can be used. These methods depend on the type of business, types of goods and the budget status.

Why Do You Need An Inventory Storage Strategy?

The first step in inventory management is to assess the total stock on hand. Afterwards, an inventory storage strategy can be applied. It can lead to many benefits, such as:

● Avoid Stockouts and Expired Goods: 

You must keep enough inventory to meet customer demand. This also reduces the number of expired items even before they are sold. 

● Optimized Storage Space: 

A good inventory system lets you design warehouses to use the space well. This can also save you bucks on storage costs. 

● Controls Costs: 

It's important to have a detailed outline of the inventory process. You can save on carrying costs, handling expenses, and write-offs in this manner. 

● Improves Customer Satisfaction: 

A well organized and managed inventory means you can discharge products at the right time, whenever there is a demand of that particular good. Besides, faster delivery options lead to customer satisfaction and loyalty. 

● Simplified Inventory Management: 

A detailed plan simplifies inventory management. It outlines the best way to track, count, and manage inventory. This can help in reducing the chance of errors.  

What Are The Different Types Of Inventory Storage Strategies?

There are several inventory storage strategies, each comes with its own set of advantages and best-use methods. These include FIFO, LIFO, FEFO, FEMAL, HIFO, and LOFO. even though the first three methods are the most used strategies, others cannot be excluded: 

• FIFO: First In, First Out 
• LIFO: Last In, First Out 
• FEFO: First Expiry First Out 
• FEMAL: First Expiry Minimum Available Lifetime 
• HIFO: Highest In, First Out 
• LOFO: Lowest In, First Out
  

Understanding The Different Storage Strategies

● FIFO: 

FIFO (First In, First Out) is extensively used in inventory management. It follows the principle of first come, first sold i.e. the first stocked items are to be sold first. Products with shorter shelf life can be easily managed by using this method. Also, selling the first procured items prevents over-stocking and obsolete goods. FIFO ensures proper quality maintenance for seasonal and consumer electronics. In this way, a more accurate representation of inventory costs is maintained when oldest items are first disposed of. Industries that commonly use FIFO to maintain the freshness of their products include consumer electronics, seasonal products, and fashion items. 

● LIFO: 

LIFO (Last In, First Out) deals with selling off the recently acquired products first as compared to those that were added earlier. This approach is used extensively for products which are long-lasting or have a slow decay rate. It is common in industries that deal with building materials, chemicals, and raw materials. One of the main benefits of this approach is that it can help in managing inventory costs, particularly during inflation periods. However, it is mostly used for homogenous goods, and can lead to older inventory becoming potentially obsolete. Therefore, it’s not largely applicable due to inventory obsolescence. 

● FEFO: 

FEFO (First Expiry, First Out) ensures the products with early expiry dates are sent out first. Products with limited storage life can be managed using this approach, which also means little wastage. Besides, it can also ensure proper utilization of products within their effective period. Food and cosmetic industries often use this method to reduce the risks of expired stocks. By reducing spoilage, it ensures fresh products reach the customers which can increase the customer satisfaction and safety. Both FEFO and FIFO can be combined to manage expiry and shortage issues.

How To Choose The Right Inventory Storage Strategy?

Different industries adopt different strategies to ensure proper stock control mechanisms. To choose the best technique for your business, know the basics: 

● Industry Regulatory Standards: Many industries follow standard practices and regulations. They may affect your choice of strategy. 

● Financial Goals: First, understand your business aims. What do you want to achieve financially? By underlining this, you can assess how each method will affect your costs and profits. FIFO can help with perishable goods costs. During inflation, LIFO might help. 

● Inventory Turnover: Check the stock turnover rate. It will decide the best method for your business needs. If your turnover is high, FIFO or FEFO can work well. For slower turnovers, consider other options. 

● Regulatory Compliance: Some industries, particularly those dealing with perishable items, concur with specific regulations when it comes to inventory management.

How To Implement These Inventory Storage Strategies?

No matter your approach, ensure these steps for success:

● Recording Accurate Inventory: 

Keep detailed records of your inventory. Track expiration dates, selling rates, and more for effective management. 

● Training Staff: 

It's important to teach employees the best industry practices. It can be effective for consistency and accuracy in inventory control operations. 

● Leveraging Technology: 

Using inventory management software and barcode scanners can help. They will streamline processes and improve accuracy. 

● Monitoring Inventory Metrics: 

To make your strategy effective, please take a look at inventory metrics. Adjust as needed.

Conclusion

The right inventory storage strategy be it FIFO, LIFO, or FEFO depends on specific business requirements, industry standards, and financial motivations. You can improve the stock control system. Do this by understanding each of them and adopting best practices. All of this can increase the operational efficiency within a business firm.