When Would I Use LIFO?

In our last post, we talked about the FIFO (first in, first out) system of warehouse storage and inventory management.

The benefits of FIFO are fairly obvious.  By moving the oldest product first, you greatly reduce the chances of expiration and obsoletion.  For any business dealing with consumables or even tech products that are rapidly updated and discontinued, the FIFO system is often the only way to do things.

But there are other ways to management inventory movement.

The second most popular system after FIFO is LIFO.  In case you can’t guess, LIFO stands for “last in, first out”.  That means the most recent products taken in are the first ones sold and removed from inventory.

Why Use LIFO?

The methodology of LIFO can be a bit complex and is less obvious than the FIFO system.  The use of LIFO generally ties directly into accounting and finances (where the term and system originated from).

Cost of products is constantly in flux.  LIFO takes the assumption that the cost of product will generally stay the same or rise.  By selling your newest product first, a company can better adjust product price according to what it currently costs.  This also has an impact on income tax, reducing tax costs on products.

The main reason to use LIFO is typically tax benefits.

LIFO in the Warehouse

There are storage systems and shelving designed specifically for the LIFO system.

If you’re using LIFO, you’ll want “Push-Back” or “Drive-In” shelving and pallet racking.  This allows you to put the newest product at the front, pushing back the older product on the shelves.  When you need to retrieve product, the latest is right there on the end of the shelf, ready to be removed.

Upon removing the end product, the remaining product slides forward, ready to be either taken off or pushed back again.

Should I Use LIFO or FIFO?

The answer to that question depend entirely on the nature of your business.  Just know that whatever system you end up using, we have the shelving you need to make it work better.

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