Get to Know 4 Stock Management Methods for Optimal Warehouse Management
- Kevin Ramadhani
- 6 days ago
- 4 min read
Companies that have storage space for product stock or raw materials are certainly familiar with warehouse management. To maintain the quality of their products, companies need good stock management.
Stock management in the warehouse can be carried out in various ways, depending on the needs and types of goods stored. In general, there are at least 4 stock management methods commonly used, namely First In First Out (FIFO), Last In First Out (LIFO), First Expired First Out (FEFO), and Average. How do these methods work and what are their advantages and disadvantages? Here is the explanation.
Stock Management Methods in the Warehouse
Companies need to know the various types of methods used to manage stock. This is important because stock quality will remain maintained until it reaches the consumer if managed properly. In addition, stock management methods are applied based on the characteristics of the products stored in the warehouse. Here are the definitions and workings of the 4 stock management methods:
1. First In First Out (FIFO) Method
As the name suggests, FIFO is a method of managing stock where goods that first enter the warehouse (First In) are shipped or removed first (First Out). This method is widely applied in retail businesses by selling products according to the order in which they arrive. The purpose of this method is to maintain and equalize product quality received by consumers.
2. Last In First Out (LIFO) Method
The LIFO method is the opposite of FIFO, where goods that arrive last (Last In) are sold or removed first (First Out). This method can be applied to products such as clothing. The use of LIFO is chosen because it simplifies the stock arrangement process in the warehouse.
3. Last Expired First Out (LEFO) Method
This stock management method refers to goods with the nearest expiration date. The way it works is by removing items with the earliest expiration date (First Expired) to be sold first (First Out). This method does not consider whether the stock arrived earlier or later, but is sorted based on expiration. The application of this method is commonly used in pharmacies.
4. Average Method
The average method is carried out by dividing the cost of goods available for sale by the total number of units available. This allows the company to calculate ending inventory and cost of goods sold using an average price. This method is commonly applied to products that do not have expiration dates, such as furniture, building materials, and others.
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Advantages and Disadvantages of Each Stock Management Method in Warehouse Operations
1. First In First Out (FIFO) Method
The advantages of applying the FIFO method include more accurate stock reporting, reduced risk of product quality decline, easier method implementation, and minimized loss due to data manipulation. On the other hand, FIFO also has disadvantages, such as higher tax expenses for the company, less accurate profit calculations, and significant differences between production capital and generated profit.
2. Last In First Out (LIFO) Method
The LIFO method offers several advantages including easier stock arrangement, more controlled and efficient tax expenses, suitability for trend-based product sales, and easier comparison of cost and revenue. However, this method also has disadvantages such as more complex stock recording, more complicated implementation that increases bookkeeping costs, and relatively lower sales profit.
3. Last Expired First Out (LEFO) Method
Applying the LEFO method provides benefits such as reducing potential losses for the company and preventing the storage of expired products. However, its disadvantages include inefficient time due to stock arrangement based on expiration dates, high risk of errors when handling a large variety of products, and more complex recording processes.
4. Average Method
The advantages of the average method include making it easier to determine inventory value without considering entry time and enabling companies to provide available products without thinking about which item entered first. The disadvantages include lower profit margins and more complex implementation compared to FIFO, LIFO, and FEFO.
Apply Effective Stock Management Methods with Prieds Warehouse Management System
Companies need to understand the types of products they sell and store in their warehouse. This allows them to choose the right and effective stock management method.
With the presence of technology, stock management methods in warehouses can be supported by hardware and systems. This ensures all management processes are minimized from risks caused by human error.
As a startup providing Warehouse Management System solutions, Prieds presents itself as a solution to stock management issues in warehouses through software that can connect with hardware using IoT technology and WMS systems. Various features from the Prieds Warehouse Management System can help your business perform inventory tracking efficiently, effectively, and accurately.
You can learn more about supply chain management solutions and consult with the Prieds expert team to gain many benefits by implementing a Smart Warehouse Management System in your business.
