What are FIFO and FEFO? Advantages, disadvantages and principles of application
FIFO and FEFO are common inventory management methods in businesses. So what are FIFO and FEFO? What are the advantages and disadvantages of these two methods? In the article below, let's join 1C Vietnam to learn about the above two terms as well as the principles of application.
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1. What are FIFO and FEFO?
1.1 What is FIFO?
FIFO is the acronym for First In First Out, which means first in, first out. In other words, goods stored first will be given priority to be sold and processed first. With this characteristic, FIFO is often applied to products that are perishable or have a short life cycle.
1.2 What is FEFO?
FEFO is the acronym for First Expired First Out, which means first expired, first out. In other words, goods with earlier expiration dates will be prioritized to be moved out of the warehouse first. In particular, the product's shelf life will be calculated from the start of production until the expiration date printed on the finished product packaging.
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2. Advantages and disadvantages of FIFO and FEFO
2.1 Advantages and disadvantages of FIFO
About advantages
- Goods are stored for a relatively short period of time, so inventory costs per unit of product are reduced.
- With the characteristic of inventory rotation linked to the time process, businesses can control product quality better, helping to avoid cases where goods have been produced for a long time but have not yet been released from warehouse.
About disadvantages
- When applying this principle, businesses require large storage space and many specialized equipment to rearrange goods, especially for goods that have been stored for a long time.
- Businesses need an inventory tracking software system to avoid missing products that were produced a long time ago.
2.2 Advantages and disadvantages of FEFO
About advantages:
- Similar to the FIFO principle, FEFO also helps businesses reduce inventory costs and increase profits because goods do not need to be stored for too long.
- FEFO helps put products with the earliest expiry dates out of storage first, helping businesses avoid difficulty controlling inventory, causing waste and loss of assets.
About disadvantages:
- FEFO also requires large storage space and specialized equipment, so businesses have to spend a large amount of investment costs.
- With this principle, products with the earliest expiry date will be shipped first, so businesses need to closely monitor to determine the exact storage period of the goods.
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3. Principles of goods arrangement of FEFO and FIFO
3.1 Principle of FIFO goods arrangement
Goods that are warehoused first will be arranged in priority order from the warehouse door to the inside, the lower floor first, the upper floor last (if there is a lot of loading and unloading). Store shelves need to be arranged neatly and scientifically and must be tagged with detailed information for accurate warehouse release. At the same time, businesses need to deploy AGV automated vehicle solutions to load and unload goods quickly and effectively.
3.2 Principles for arranging FEFO goods
Warehouse staff need to arrange goods based on the product's shelf life. Items with a longer shelf life will be pushed to the back while items with a shorter shelf life will be stored in the front.
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4. Benefits of using FEFO and FIFO methods
Benefits of the FIFO method
- Ensuring the business's goods flow is always at a stable level.
- Pre-produced goods will be sold first, reducing obsolescence and expiration.
- Minimize disposal costs and obsolete goods.
Benefits of the FEFO method
- Products are always guaranteed quality when they reach users, helping them feel secure in using the product, bringing sustainable value to businesses.
- Prevent excessive or expired inventory causing waste and loss of assets.
- Cut down on warehousing costs and costs of recalling expired goods.
- Helps businesses know which shipments to export and what new shipments to import.
Above, 1C Vietnam has shared details about FIFO and FEFO , the advantages and disadvantages as well as the principles of applying these two methods. Through that, businesses can choose a form of managing imported and exported goods that suits their requirements. In addition, to support reasonable inventory management, businesses can apply supporting software such as 1C:Company Management software. Contact 1C Vietnam for support and software deployment for effective management.
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