Choosing the right inventory strategy is crucial for reducing waste, maintaining compliance, and ensuring product quality. Two common methods, FIFO (First In, First Out) and FEFO (First Expired, First Out), determine how stock moves through the supply chain. While FIFO is widely used, FEFO is often the better choice for perishable and time-sensitive goods.
Why Inventory Flow Matters
Effective inventory management helps businesses reduce waste, maximize profits, and comply with industry regulations. The right method prevents stock spoilage, optimizes order fulfillment, and improves operational efficiency.
Different inventory flow strategies impact how stock is managed and used. Choosing the right approach is especially important for industries handling perishable goods, pharmaceuticals, or regulated products, where quality and compliance are top priorities.
What is FIFO (First In, First Out)?
FIFO is an inventory management method where the oldest stock is sold or used first. This approach follows a natural product flow, making it ideal for non-perishable goods such as electronics, clothing, and hardware. Many businesses prefer FIFO because it keeps inventory moving in a straightforward, chronological order.
Industries that commonly use FIFO include:
- Retail & E-commerce: Ensures older stock is sold before new shipments arrive.
- Manufacturing: Helps manage raw materials and maintain cost consistency.
- Accounting & Finance: Aligns with inventory valuation practices and reflects rising costs over time.
While FIFO works well for many industries, it may not be the best choice for businesses dealing with perishable or time-sensitive products.
What is FEFO (First Expired, First Out)?
FEFO is an inventory management method that prioritizes products based on expiration dates rather than when they were received. This approach guarantees that items with the earliest expiration dates are used or sold first, reducing waste and maintaining product quality.
Industries That Rely on FEFO
FEFO is essential for businesses handling perishable and time-sensitive goods, including:
- Food & Beverage: Prevents spoilage and keeps products fresh for consumers.
- Pharmaceuticals & Healthcare: Helps maintain compliance with strict regulations and patient safety standards.
- Cosmetics & Personal Care: Ensures products remain effective and safe for use.
Why FEFO is the Preferred Choice for Compliance
Major retailers and regulatory agencies, such as the FDA and USDA, favor FEFO because it helps businesses meet safety and quality standards. By prioritizing expiration dates, companies can avoid selling outdated products, prevent financial losses, and build customer trust.
How FEFO Ensures Quality & Compliance
FEFO plays a crucial role in maintaining product integrity and meeting industry regulations. By prioritizing expiration dates, businesses can prevent outdated or unsafe products from reaching consumers. This approach reduces spoilage, minimizes financial losses, and protects customers from potential health risks.
Many industries, including food, pharmaceuticals, and healthcare, operate under strict regulations set by agencies like the FDA and USDA. FEFO helps businesses stay compliant by keeping expired or compromised products out of circulation. Retailers and manufacturers that follow this method demonstrate a commitment to safety, which strengthens consumer trust and brand reputation.
FIFO vs. FEFO: Which One Is Better?
FIFO and FEFO serve different purposes. FIFO works best for non-perishables, allowing older stock to move first. FEFO, however, is critical for perishable and regulated products, as it prioritizes expiration dates to maintain safety and compliance.
Industries like food, pharmaceuticals, and healthcare rely on FEFO to meet strict quality standards and prevent product waste. Major retailers and regulatory agencies also favor this approach to make sure customers receive safe, high-quality goods. For businesses handling time-sensitive inventory, FEFO is the smarter choice.
FIFO Pros & Cons
Pros of FIFO
- Simple & Logical Flow: Products move in the order they are received, making inventory tracking straightforward.
- Effective for Non-Perishables: Works well for industries like retail, e-commerce, and manufacturing, where expiration dates aren’t a concern.
- Aligns with Rising Costs: FIFO reflects the natural price increase of goods over time, which can be beneficial for financial reporting.
Cons of FIFO
- Doesn’t Prioritize Expiration Dates: Not ideal for food, pharmaceuticals, or cosmetics, where product freshness is critical.
- Can Lead to Spoilage & Waste: Older stock may sit too long if expiration dates aren’t monitored, resulting in unsellable products.
- Less Effective in High-Volume, Fast-Turnover Industries: Businesses dealing with frequent shipments of time-sensitive goods may find FIFO inefficient.
FEFO Pros & Cons
Pros of FEFO
- Reduces Waste: Ensures products are used before they expire, minimizing spoilage and financial losses.
- Essential for Compliance: Helps businesses meet strict regulations in industries like food, pharmaceuticals, and healthcare.
- Prioritizes Product Quality: Customers receive fresher, safer, and more effective products, improving satisfaction and brand reputation.
Cons of FEFO
- Requires Strict Inventory Tracking: Businesses must have accurate expiration date management to implement FEFO effectively.
- May Increase Operational Complexity: Sorting inventory by expiration dates instead of arrival orders can require more resources and technology.
- Not Necessary for Non-Perishables: Industries dealing with long-lasting goods may not benefit from this method.
Other Inventory Valuation Methods
While FIFO and FEFO are widely used for stock movement, businesses may also use other inventory valuation methods for financial reporting and cost management.
- LIFO (Last In, First Out): Moves the newest inventory first, often used for tax advantages but rarely recommended for industries handling perishable goods.
- Average Cost Inventory: Calculates inventory value based on the average cost of all units, helping smooth out price fluctuations.
- Specific Inventory Identification: Tracks individual items based on their actual cost, making it ideal for high-value or unique SKUs, such as jewelry or specialty equipment.
These methods can complement FIFO or FEFO, depending on a business’s accounting and operational needs.
Why FEFO is the Best Choice for Perishable & Time-Sensitive Goods
For industries like food, pharmaceuticals, and healthcare, FEFO is the most reliable method for managing perishable inventory. By focusing on expiration dates, businesses can reduce waste, meet regulatory standards, and deliver high-quality products.
Since major retailers and compliance agencies prioritize product safety, FEFO helps businesses streamline operations while protecting both consumers and brand reputation.
Optimize Your Inventory with B&C Logistics – Contact Us Today!
Managing inventory effectively is key to reducing waste and staying compliant. For perishable and time-sensitive goods, FEFO is the best choice to maintain quality and efficiency.
B&C Logistics Group offers expert warehousing, fulfillment, and shipping solutions to streamline your supply chain. Contact us today to see how we can support your business!