What is FIFO in warehousing? First in, first out method explained

FIFO (first in, first out) is a stock rotation method that prioritises shipping items stored in the warehouse the longest. It minimises stock shelf life, thereby reducing risk of expiry, damage or obsolescence. FIFO requires strict putaway and picking rules and is enhanced by an optimised warehouse layout and specialised shelving.

• FIFO is a stock rotation method that prioritises shipping the oldest items in a warehouse
• By minimising shelf life, FIFO  reduces the risk of stock expiry, damage or obsolescence
• FIFO requires labels of the receipt date and storing items above or behind older items
• It can be enhanced via an optimised warehouse layout and infrastructure like gravity-fed shelving
• A warehouse management system can provide the stock visibility and automation to simplify FIFO.

FIFO definition

The first in, first out method is an inventory management system where the oldest stock in a warehouse is sold and shipped first. It requires warehouse staff to adhere to strict rules for putaway and picking, as well as regular audits to ensure the method is being successfully applied.

First in and first out stock rotation is achieved via specialised shelving or racking that helps ensure the oldest items are always picked first, as well as technology like barcode scanners and a warehouse management system to monitor stock entry and exit dates.

In addition to being a stock rotation strategy, first in, first is also used in accounting. The FIFO accounting method is used to calculate the value of stock by assuming the oldest products are sold first.

Why FIFO matters for warehouse inventory flow

The first in, first out method is crucial as it helps get perishable items (like food or pharmaceutical products) out the door before they pass their use-by date. It also helps ensure goods that can quickly become obsolete due to product advancements or evolving trends, like consumer electronics or clothing, are sold sooner.

The method is also valuable for non-perishable items, ensuring they’re sold before they degrade due to prolonged storage or temperature fluctuations.

First in and first out method vs general stock rotation

The difference between the two is that first in, first out is a strict method that moves goods based on their receipt date. The method is more systematic, embedded into the warehouse layout and technology to guarantee the oldest items are selected first (which may be a mandatory compliance requirement for goods like pharmaceuticals). 

Meanwhile, general stock rotation is less formal. It prioritises selecting the oldest or slowest-moving items, but might allow for exceptions to this rule. It may not be embedded into warehouse infrastructure, instead relying on picker diligence or simple visual checks. 

Step 1: Inventory receipt and labelling

Upon receiving goods at the warehouse, each pallet, case or item has a unique identifier applied that typically includes the date of receipt and the lot/batch number (and often the expiry date and date of manufacture). These details are entered into the warehouse management system, giving the business visibility of its newest and oldest stock.

Step 2: Product placement and organisation

Goods most recently received are stored behind or above existing items of the same type, ensuring the oldest stock can be picked first. This flow-through of stock is often facilitated by gravity-fed racking or shelving (which we’ll explain later in this article).

Step 3: First in and first out picking and order fulfilment

The warehouse management system, often via a pick list on a mobile device, directs staff to pick ordered items with the oldest time stamp. Once that is done, the next oldest item moves to the front or bottom so it can be picked next. When pickers scan items, they are alerted if they have accidentally scanned a newer item.

Step 4: Replenishment

This is an ongoing process to ensure FIFO inventory management is applied in a storage location. New stock is stored at the back or top of existing items of the same type, thereby pushing older inventory to the front or bottom. This process is best facilitated with two dedicated aisles; one for placing inventory and the other for picking.

Step 5: Dispatch and shipping

Packaged items are moved to the staging area for a final check to ensure all items are accounted for, before being picked up by a courier. 

Here’s what makes the first in, first out method valuable to warehouses.

• Reducing spoilage and obsolescence

  By having a system that ensures the oldest items received at the warehouse are picked and packed first, a business can dramatically reduce time spent in storage. Therefore, the risk of items reaching expiry or becoming outdated is decreased.
  
  

• Maintaining product freshness and compliance

  The first in and first out method helps ensure customer satisfaction as it shortens item shelf life. They therefore receive items with the longest possible remaining shelf life. This also helps warehouses meet strict regulatory requirements for stock like food or pharmaceutical items.
  
  

• Improving traceability and stock accuracy

  A clear audit trail is created within the inventory management system as stock movements are driven by date-specific rotation. The business has visibility of which oldest item was picked, when and for which order. Date-based inventory management also requires the warehouse team to be more disciplined, which increases stock accuracy.  

Here’s how the first in, first out method compares to other stock rotation methods.

Let’s explore the key practices and elements of your warehouse you need to optimise to implement FIFO effectively.

Organising and labelling inventory

The first in, first out method relies on the warehouse having accurate visibility of certain data, which is recorded and accessed via a warehouse management system. This includes item receipt date and lot number/batch ID (and often the expiration date too).

Large labels featuring barcodes must be applied to items as they’re received, so they can be scanned by pickers. These must be consistent so pickers don’t have to search for information or barcodes.

Bin-location and zone design for first in and first out flow

The warehouse layout can be optimised for FIFO by ensuring a two-way flow system for storage locations that separates the stock loading and picking process. This involves having a “load face,” designated for putaway staff, and “pick face,” designated for pickers.

This system forces an item to move in one direction from the moment it’s put away until it’s picked. For instance, the item moves from the back to the front of the bin.

Training warehouse teams on FIFO inventory rules

While a warehouse management system and infrastructure helps set up a FIFO system, it also needs staff trained in and observant of specific rules. Receiving staff must be trained to accurately capture receipt date and lot numbers as well as to correctly label every item or pallet.

Putaway staff must understand the load face, pick face setup so they always load from the back/top. Pickers must understand this setup too to ensure they pick from the front/bottom.

Auditing and monitoring stock movement

Regular audits are crucial to check the first in and first out system is working. This includes inspecting pick face checks to see if items at the front have older receipt dates than those behind.

A warehouse management system can provide

visibility of item dwell time, which lets you know how long an item has been on the shelf. If it’s been there for some time, it could mean the item is selling slower than expected or that first in, first out rules aren’t being followed by staff.

Warehouse infrastructure is crucial to successfully implement first in and first out rotation. Here are the most effective solutions for applying the method.

Live pallet racking

Also known as pallet flow racking or gravity flow racking, this full-pallet system involves using gravity-fed inclined rollers; namely, inclined rails fitted with steel roller tracks. When a pallet is placed on the high side of the inclined shelf, it rolls down to the lower side, accessible to pickers.

This system ensures FIFO as the last pallet loaded is physically trapped at the back until all previous pallets towards the front have been picked. It provides clear separation between the load face and pick face.

Carton flow systems

Ideal for high-volume, small-item picking, this form of shelving uses the same gravity-fed principle as live packet racking, except for totes or cartons. It improves picker efficiency by ensuring the carton is always within easy reach (as the next oldest carton slides towards the pick face).

Gravity-fed shelving

This is a simpler and more cost-effective form of shelving that also uses gravity to push the oldest items to the pick face. These are normal shelves built on a slight incline, allowing items to slide down.

Drive-through racking considerations

To ensure FIFO, drive-through racking must have two access points on opposite ends of the storage lane. Putaway staff loads from the rear, while pickers unload the same lane from the front.

This type of racking is ideal for high-density, high-volume storage, where entire lanes are dedicated to a single product batch.

Using AS/RS to maintain FIFO integrity

Automated storage and retrieval systems offer the most advanced and accurate way to ensure first in, first out. When a high-density pallet or tote is placed on the system, software-controlled cranes and shuttles physically move the inventory.

The warehouse management system directs the crane to place the newest stock away from the retrieval face, typically deep inside the racking structure. When an order is received, the WMS identifies the bin location of the oldest unit and the crane retrieves that unit.

Monitor FIFO inventory flow daily

To ensure the first in, first out method is being applied correctly, it’s important to track movement reports and compare stock levels against warehouse management system data. Warehouse supervisors should check pick faces daily to ensure older stock is positioned at the front.

Dashboards and reporting within your WMS can give you visibility of key stats, including item dwell time.

Record stock entries immediately

A warehouse management system makes this easier as it allows you to track every item as it moves through your warehouse, including entry and exit dates. This, however, relies on disciplined and timely entry of these dates as well as batch/lot numbers by your receiving team.

Use barcode scanning or RFID

Equipping receiving staff with barcode scanners (that send data to your WMS) to scan stock the moment they arrive helps improve the accuracy and efficiency of recording entry dates. It also improves the speed and accuracy of pickers, with the scanner flagging if a newer item is picked prematurely.

Radiofrequency identification technology offers even better control by automatically recording item movement without manual scans.

Align replenishment with FIFO inventory flow

Create separate aisles for putaway and picking, ensuring these two processes are separate, taking place at opposite ends of a shelf or rack. Ensure putaway staff and pickers are sufficiently trained so that they only stock/pick items from their dedicated aisle.

Set automated alerts for aging stock

Configure your warehouse management system with rules so it sends alerts when stock reaches a specific age threshold. For instance, this could be when it reaches 75 percent of its total shelf life. 

FIFO capabilities in a WMS

A warehouse management system automates and simplifies inventory management, with specific capabilities to facilitate first in, first out. It can provide:

1. Visibility: Tracks every item as it moves through your warehouse, including entry and exit dates, best before dates, batch/lot numbers and serial numbers
   
   
2. Automation: Automates stock allocation for perishable products and provides custom expiry date alerts, while providing full traceability of stock movements
   
   
3. Barcode scanning: Staff can use barcode scanners and voice-assisted picking commands to easily locate and pick full pallets by using unique IDs
   
   
4. Efficiency: You can replenish stock with one-stage putaway by scanning items directly to storage locations, or via two-stage putaway using goods-in locations followed by a transfer to storage
   
   
5. Auditing: Provides a full audit trail of all stock transactions, which are stored with the order ID, customer name and operator that committed the action
   
   
6. Reporting: You can create customised reports to track FIFO KPIs like dwell time.

You can discover more capabilities in our comprehensive guide to warehouse management systems and learn what’s needed to get one up and running with our warehouse implementation guide.

Human error in picking

Even with sufficient staff training and procedures, pickers may pick newer stock if it's the most easily accessible item. This can happen if the flow of goods is not enforced by racking/ shelving.

If there’s a high-selling product, and the replenishment rate is exceeded by the pick rate, the pick face could run dry. Pickers may then select the product from a reserve storage location that isn’t set up for FIFO.

Incorrect bin placement

FIFO can be upended if putaway staff place newer stock in front of older stock. For instance, they may load new stock into the pick face. That’s why it’s crucial to have clearly delineated load faces and pick faces.

Bottlenecks in high-volume areas

If load faces and pick faces aren’t clearly separated, it could result in traffic congestion that prevents pickers from accessing the oldest stock (due to the presence of forklifts, for instance).  

Bullwhip effect risks

This is where small changes in consumer demand can lead to larger, more volatile orders up the supply chain. Instead of receiving small, regular shipments of a product, a warehouse will receive massive, infrequent deliveries.

FIFO depends on small, frequent deliveries of stock. The bullwhip effect means that the warehouse will fill up with stock that won’t be sold for an extended period, increasing their dwell time.