FIFO (First in First Out) - Definition, Importance & Example
What is FIFO (First in First Out)?
FIFO or first in first out is a process for storage of goods in sequential manner to utilize the goods which are stored first. In FIFO, the goods are stored first on a priority manner, and are then consumed first. First in first out inventory management is mostly used when storing & consuming perishable goods.
Importance of FIFO
Storage of goods is an important factor while managing inventory. Storage of goods needs to be done in a sequential manner so that they can be used as and when needed, rather than rearranging the stocked goods again & again. One such method is FIFO, where the goods are stored in a sequential manner for a continuous process flow. First in first out means the goods which are stored first, need to be consumed first. This is applicable for perishable goods like food, drinks, eatables etc. These goods have to consumed first else they will depreciate & become waste. The alternate method of inventory storage is LIFO or last in first out.
Advantages of First in First Out
Some benefits of FIFO inventory storage are:
1. This method is recommended for storage of perishable goods.
2. It is a simple solution following a sequential natural flow of goods.
3. Since goods stored first are consumed quicker, there is lesser wastage.
Example of FIFO
1. Consider a retail store selling eggs, bakery products, milk etc. On day 1, the store gets 20 eggs, 10 breads and 10 milk packets. Customers purchase 15 eggs, 5 breads and 10 milk packets. Now on the second day, the stock is again called in for refill. In FIFO, the goods received on day 1 have to consumed first else they would become a waste. This is why for first in first out is a recommended method of inventory storage especially for perishable items.
Hence, this concludes the definition of FIFO (First in First Out) along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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