FIFO

FIFO is a common term thrown around in various industries like inventory management, accounting, and even job scheduling. But what exactly does FIFO mean, and how is it applied in real life scenarios? This article will answer all your questions about FIFO and its many applications.

What is the Meaning of the Term FIFO?

FIFO stands for "First In, First Out." This term is used to describe a method of processing and managing items in the order they are received. Think of it like a queue where the first person in line is the first one to be served.

What Do You Mean by FIFO Method?

The FIFO method is a way of adding and removing items in a specific, ordered manner. This technique is most prominently used in inventory management and accounting.

1. Inventory Management: In inventory management, FIFO ensures that older stock is used before newer stock. This is particularly important for perishable items like food.
2. Accounting: In accounting, it ensures that the cost of older inventory is charged first, making it simpler to track profits and losses accurately.

What is an Example of FIFO in Real Life?

There are several real-life examples of FIFO:

1. Grocery Store: Imagine a grocery store shelf stocked with milk. The store staff will place new milk bottles behind the older ones, so customers pick up the older milk first.
2. Library: When returning books, those that arrive first are processed first.
3. Customer Service: Call centers often use a FIFO queue to manage incoming customer service calls.

What is FIFO in Inventory Management?

FIFO in inventory management is a methodology used to ensure that the oldest inventory items are used or sold first. This reduces waste and helps in maintaining the quality of stock, especially for perishable goods.

Example

A bakery that uses FIFO will arrange its bread such that older loaves get sold first, thus avoiding the sale of stale bread.

Ordoro is an excellent inventory management software that implements the FIFO method effectively. It is highly reliable and used by numerous Shopify merchants.

What is a FIFO Job?

The term FIFO is also used in a very different context. For example, a FIFO job generally refers to a "Fly-In Fly-Out" job, a term often used in industries like mining, oil, and gas. Employees fly to a remote location to work for a certain period and then fly back home.

Example of a FIFO Job

A mining engineer gets a FIFO job where they work for two weeks straight at a mining site and then take a week off to go back home. This cycle repeats throughout the year.

FIFO Jobs

FIFO jobs are common in sectors like construction, oil, gas, and mining. These jobs often come with unique perks such as high salaries and travel allowances, but they also have their downsides, like being away from family for extended periods.

Companies Offering FIFO Jobs

1. Mining Companies
2. Oil and Gas Corporations
3. Construction Firms

FIFO Example

Let’s go back to FIFO in the inventory management context. Let's consider a FIFO example in inventory management for a better understanding:

1. Date:

January: Purchased 100 items at $1 each.

February: Purchased 100 items at $2 each.

March: Sold 150 items.

2. Cost Calculation:

The first 100 items sold are valued at $1 each

The next 50 items sold are valued at $2 each

Therefore, the cost of goods sold (COGS) in this example will be (100 * $1) + (50 * $2) = $200.

FIFO Method

The FIFO method is a systematic approach used in various fields to ensure the first items are processed first. This concept is straightforward but incredibly effective in maintaining order and reducing waste.

1. Steps:

Identify the items

Track the arrival date of each item

Process or sell the first arrived item first

FIFO Formula

In accounting and inventory management, the FIFO formula is used to calculate the cost of goods sold (COGS).

Formula:

COGS = (Number of Units Sold from Oldest Inventory * Cost per Unit of Oldest Inventory) + (Number of Units Sold from Next Oldest Inventory * Cost per Unit of Next Oldest Inventory) + ...

Example

If you sold 150 units:

1. 100 units from the oldest inventory at $1 each
2. 50 units from the next oldest inventory at $2 each

COGS = (100 * $1) + (50 * $2) = $200

FIFO Accounting

FIFO accounting is a method used primarily to calculate the cost of goods sold and remaining inventory value. It's particularly beneficial during inflationary times as it matches the older, cheaper costs with current revenues, thus inflating profit.

Benefits

1. More accurate profit calculation
2. Easier to apply for companies with perishable goods
3. Aligns closely with actual flow of goods

FIFO Full Form

The full form of FIFO is "First In, First Out." This term can be applied to various industries but fundamentally represents a systematic way of processing items based on their arrival time.

What is FIFO in Food?

FIFO in food management is an essential practice. It ensures that older food items are used or sold first, minimizing waste and ensuring safety and quality.

Example

In a restaurant, staff might be trained to use FIFO by always using the ingredients that have been stored the longest. If they have two batches of sauce, they would use the older batch first.

Inventory management is crucial in the food industry. Using software like Ordoro can streamline this process by automatically applying FIFO principles, thereby reducing waste and ensuring quality.

Conclusion

FIFO is a versatile term applied in numerous fields from inventory management to job scheduling. Its core principle remains: items that are first in line should be the first ones out. Whether you're running a grocery store, working in a FIFO job, or managing a high-volume warehouse, understanding FIFO principles can help streamline operations, reduce waste, and improve profitability.

Interested in efficient inventory management? Try Ordoro, a highly recommended software that can seamlessly integrate with your existing system, ensuring smooth operations.