🏷️ 1. FIFO – First In, First Out
📌 Definition:
Oldest inventory (the first items received or produced) is the first to be issued, sold, or consumed.
✅ How It Works:
FIFO assumes that the goods that are added to inventory first will be the first ones to leave the inventory.
📦 Example:
Milk cartons stocked on different dates — the oldest carton (with earliest expiry) is sold first to prevent spoilage.
🏭 Industries Using FIFO:
- Food & Beverage (e.g., dairy, bakery, fruits)
- Pharmaceuticals
- Retail
- Cosmetics
🌟 Benefits:
- Reduces waste and spoilage
- Matches physical flow of goods
- Complies with most health regulations
- Keeps inventory fresh
⚠️ Drawbacks:
- Might not match rising cost trends (in accounting)
- Slightly complex to manage manually without a system
📅 When to Use:
- When stock expires, deteriorates, or becomes obsolete
- When ensuring product freshness is critical
🏷️ 2. LIFO – Last In, First Out
📌 Definition:
The newest inventory (last items added) is used or sold first, while older stock stays in inventory longer.
✅ How It Works:
Recently received goods are issued before older stock, which may remain unsold for a longer period.
📦 Example:
A pile of gravel or flour — you scoop from the top (most recent batch), not from the bottom.
🏭 Industries Using LIFO:
- Construction
- Raw materials (sand, cement, gravel)
- Accounting (cost inflation adjustment)
🌟 Benefits:
- During inflation, reflects higher cost of goods sold (reduces taxable income)
- Simplifies usage where items are stacked or piled
⚠️ Drawbacks:
- Can result in obsolescence or spoilage of older stock
- Not allowed under IFRS accounting standards (used in US GAAP only)
- Breaks natural product flow
📅 When to Use:
- For non-perishable materials
- When tax benefits from high cost of goods sold are needed
🏷️ 3. CIFO – Cost In, First Out
📌 Definition:
The lowest-cost item is picked first, regardless of date received or expiration.
✅ How It Works:
Used mainly in cost-saving strategies — cheaper stock is consumed or sold first to improve margins.
📦 Example:
Three boxes of the same product purchased at ₹10, ₹15, and ₹20 — the ₹10 box is dispatched first.
🏭 Industries Using CIFO:
- Wholesale
- Procurement-focused businesses
- Bulk commodity handlers
🌟 Benefits:
- Maximizes profit margins
- Prioritizes low-cost stock movement
- Helps clear cheaper inventory first
⚠️ Drawbacks:
- Can lead to expired or older stock sitting unused
- Not suitable for perishables
- Requires precise cost tracking for each batch
📅 When to Use:
- When reducing holding cost is a priority
- Where price fluctuation is common, and profit optimization is needed
🏷️ 4. DEFO – Damaged First Out
📌 Definition:
Damaged or defective stock is picked and moved out first to minimize waste and avoid delivery to customers.
✅ How It Works:
Items flagged as damaged (but still usable or sellable at a discount) are selected first for return, rework, or discount sale.
📦 Example:
Two boxes — one with a damaged corner and one intact — the damaged one is picked first.
🏭 Industries Using DEFO:
- Electronics (refurbished items)
- Apparel
- Warehousing
- Returns departments
🌟 Benefits:
- Prevents further damage
- Reduces inventory variance
- Clears space by eliminating dead/damaged stock
⚠️ Drawbacks:
- Not all damaged items can be reused
- May require quality check mechanisms
- Can affect brand image if shipped to customers
📅 When to Use:
- When quality control and space optimization are priorities
- In returns processing or discount sales
🏷️ 5. EFO – Expiration First Out
📌 Definition:
Items nearest to expiration are dispatched or consumed first, regardless of arrival date or cost.
✅ How It Works:
Expiry dates are tracked, and items nearing expiration are moved out first to reduce loss and meet regulations.
📦 Example:
Bottles with expiration dates 08/24, 09/24, and 11/24 — the 08/24 bottle is dispatched first.
🏭 Industries Using EFO:
- Food & Beverage
- Pharma & Health Products
- Cosmetics
- Cold Storage
🌟 Benefits:
- Prevents expired stock
- Ensures compliance with FDA or health regulations
- Maintains customer safety and trust
⚠️ Drawbacks:
- Requires tracking of expiry dates
- Complex without software tools
- Possible mismatches between FIFO and EFO
📅 When to Use:
- When shelf-life is strictly regulated
- For batch tracking and expiry-based recalls
📊 Comparison Summary
| Method | Logic | Ideal For | Risk |
|---|---|---|---|
| FIFO | First stock out first | Perishable goods | None if well managed |
| LIFO | Recent stock out first | Construction, accounting | Obsolete inventory risk |
| CIFO | Cheapest stock out first | Cost-saving goals | May leave costly or old stock |
| DEFO | Damaged stock out first | Quality management | Limited if high-quality needed |
| EFO | Expiring soon stock first | Health & safety | Needs accurate date tracking |
💡 Pro Tip:
Many businesses combine strategies. For example:
- Use FIFO + EFO for perishables
- Use DEFO for returns or quality issues
- Apply CIFO in cost-sensitive purchasing
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