FIFO (First In, First Out) is an inventory management method where the oldest stock received is the first stock sold or used.
Why FIFO Matters
FIFO helps businesses maintain accuracy, freshness, and financial clarity. It allows teams to understand:
- How stock flows through the system — oldest units move first
- How inventory ageing is controlled to prevent obsolescence
- How financial reporting stays aligned to real costs
- How operational processes minimise waste
- How stock valuation reflects true economic conditions
FIFO is especially important for products with expiry, seasonality, or fast‑changing trends.
How FIFO Works
FIFO is applied through operational and system‑driven rules:
- Receipts are timestamped so the system knows which stock arrived first
- Picking logic prioritises older units
- Valuation uses earlier costs first when calculating COGS
- Stock rotation processes ensure physical alignment in warehouses
- Reporting reflects the cost of earlier batches rather than newer ones
Example: If a warehouse receives 500 units in January and 500 more in February, FIFO ensures the January stock is sold first, even if the February batch was cheaper or more expensive.
Common Use Cases
- Inventory valuation for accounting and reporting
- Warehouse operations to reduce ageing and waste
- Demand forecasting using accurate stock flow
- Replenishment planning based on true depletion rates
- Quality control for perishable or regulated products
- Seasonal stock management to avoid outdated inventory
Related Terms
- LIFO (Last In, First Out)
- Inventory Turnover
- Stock Ageing
- COGS
- Replenishment
- Inventory Accuracy
What FIFO Really Tells Us
FIFO reveals the tempo of a business’s inventory, how quickly products move, how well stock is managed, and how closely operations mirror customer demand.
What makes FIFO especially insightful is how it connects the physical world to the financial one. It shows how decisions made months earlier, buying depth, timing, cost negotiations, play out in today’s margins and tomorrow’s stock health. It’s a reminder that inventory isn’t static; it’s an evolving system.
FIFO reflects a commitment to using what you have responsibly, valuing accuracy over convenience, and keeping the flow of stock honest. When teams treat FIFO not as a rule but as a lens, they gain a clearer sense of how well their inventory is working and where the story is starting to drift.
