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Differences Between FIFO, FEFO, LEFO: 3 Commonly Stock Management Methods

In warehouse management, there are several storage and stock release methods used to optimize stock flow and reduce the risk of losses due to expired or obsolete goods. Companies can choose a management method that fits their characteristics and operational needs. 


Definition of FIFO, FEFO, and LEFO Methods in Stock Management

Pengertian Metode FIFO, FEFO, dan LEFO dalam Pengelolaan Stok

In general, there are three main methods commonly used in stock management: FIFO, FEFO, and LEFO. Here's an explanation of each:


1. Definition of First-in, First-out (FIFO) Method

FIFO is a stock management method where the first items to enter the warehouse are the first to be used or sold. By applying this method, companies will always have the newest stock when restocking goods.


2. Definition of First Expired, First Out (FEFO) Method

FEFO is a stock management method that prioritizes the expiration date of each product. Companies using this method will sell or use stock that is approaching its expiry date, regardless of when the item was received in the warehouse.


3. Definition of Last In, First Out (LEFO) Method

Unlike the FIFO method, LEFO is a stock management method where the last items to enter the warehouse are the first to be taken out. This method is suitable for products that do not have a shelf life or for products with high turnover rates.


Benefits of Using FIFO, FEFO, and LEFO Methods

Each of these three methods (FIFO, FEFO, and LEFO) offers advantages to companies that apply them. Here are the benefits of each:


1. Benefits of First-in, First-out (FIFO) Method

Implementing the FIFO method in stock management offers several advantages, such as:

  1. Reducing the risk of expiration or quality degradation of stock.

  2. Preventing the accumulation of older stock in the warehouse, which can lead to overstock and dead stock.

  3. Ensuring proper stock rotation in the warehouse so that no products are stored too long.

  4. Improving stock management efficiency by avoiding the buildup of outdated products.

  5. Suitable for managing items with limited shelf life.


2. Benefits of First Expired, First Out (FEFO) Method

Companies applying the FEFO method in stock management will gain several benefits, including:

  1. Reducing the likelihood of items expiring before they are used or sold.

  2. Optimizing stock usage so that no product is wasted.

  3. Preventing losses due to products becoming unsellable after expiration.

  4. Ensuring compliance with industry regulations that require usage before expiry dates.

  5. Highly suitable for industries dealing with tightly time-bound consumable goods.


3. Benefits of Last In, First Out (LEFO) Method

Although not all goods can be managed using the LEFO method, it offers several advantages, such as:

  1. Ideal for industries handling stock with fluctuating values, such as market-priced commodities.

  2. Allows companies to optimize profit in changing price conditions.

  3. Can help reduce tax expenses in certain accounting systems, as newer goods typically have higher values.

  4. Saves labor in storing and retrieving items from the warehouse, since the latest goods are easier to reach.

  5. Suitable for items that do not degrade in quality over time.


How to Implement FIFO, FEFO, and LEFO Methods

According to their definitions, the FIFO, FEFO, and LEFO methods have different implementation approaches in company stock management. Here's how to apply each:


1. Implementing the First-in, First-out (FIFO) Method

To implement FIFO optimally, companies can follow these steps:

  1. Warehouse Layout Arrangement: Staff must arrange layouts so that older stock is placed at the front or in easily accessible areas.

  2. Labeling & Batch Coding: Each product must be labeled with the entry date or batch code for easier identification.

  3. Routine Checks & Monitoring: Warehouse staff need to conduct periodic inspections to ensure items are issued according to the order of arrival.


Use the FIFO method if you want to ensure older stock does not pile up in the warehouse and stays in good condition.


2. Implementing the First Expired, First Out (FEFO) Method

The FEFO method can be applied in stock management through the following:

  1. Product Identification & Labeling: Each item must be labeled with an expiration date for easier tracking. 

  2. Separating Products by Shelf Life: Products with nearer expiry dates should be stored in more accessible areas.

  3. Periodic Stock Checks: Conduct regular monitoring and checking to ensure items with the shortest shelf life are prioritized for dispatch.


Use the FEFO method when handling products with strict consumption deadlines such as pharmaceuticals and food.


3. Implementing the Last In, First Out (LEFO) Method

Here are the steps to implement the LEFO method in stock management:

  1. Store Items on Easily Accessible Shelves: The newest stock should be placed at the front or in the main picking area.

  2. Flexible Stock Rotation: This system does not require strict stock rotation since it focuses on non-perishable goods.

  3. Using Fluctuating Value Products: Stock with market-driven pricing can be more profitable when dispatched from the newest inventory.


Use the LEFO method if you're dealing with products without shelf life limitations and fluctuating market prices.


Apply the Right Stock Management Method for Your Business Using WMS

Choosing the right method helps companies improve stock management efficiency, optimize operational costs, and reduce the risk of losses from unsold or expired inventory. Companies can apply FIFO, FEFO, or LEFO methods depending on their stock needs and characteristics. For optimal warehouse management, companies also need to implement technology, such as a Warehouse Management System (WMS).


As a WMS provider, Prieds offers software that helps companies simplify warehouse management through the appropriate stock management method, while also enhancing visibility across all warehouse operations.


Through Prieds WMS implementation, companies can configure the system to suit their needs and integrate it with other systems or devices such as RFID, thereby optimizing stock management using methods like FIFO, FEFO, and LEFO.


Learn more about the proper application of stock management methods through WMS by consulting with our expert team. Get a system equipped with comprehensive features, top-tier security, and user-friendly design tailored to your company’s needs with Prieds.


 
 
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