FIFO, LIFO and FEFO are three methods that determine which stock batch leaves the warehouse first. Under FIFO the first batch in is the first out, under LIFO the last batch in is the first out, and under FEFO the batch with the earliest expiry date is shipped first. Which one to choose depends on the product's shelf life, regulations and the warehouse's racking layout.
What does the stock issue method determine in a warehouse?
When an order comes in, the picker has to choose one of several pallets with the same product code. These pallets may have been received on different dates, come from different production batches and carry different expiry dates. If no issue rule is defined, the picker takes the pallet that is easiest to reach; the older stock at the back ages, becomes obsolete or spoils. The method has two separate dimensions: the physical order in which goods leave, and the purchase price used in accounting to calculate the cost of goods sold. These two issues should not be confused; this entry covers the physical flow.
FIFO: first in, first out
The batch received first is shipped first. It is the default rule for products that age or change model over time, such as spare parts, textiles, packaging materials and electronics. Since the sequence is based on the goods receipt date, it is the simplest method to apply.
LIFO: last in, first out
The most recently arrived batch leaves first. This arrangement arises naturally with non-perishable materials kept in bulk: sand, crushed stone, coal, bricks, reinforcing steel. Because the newly arrived load is placed in front or on top, it is taken first. With packaged products that have a shelf life, LIFO causes the pallet at the very back to wait for months or even years.
FEFO: first expired, first out
The basis is the expiry date, not the receipt date. It is the right method for pharmaceuticals, food, cosmetics, paints and certain chemicals. If a batch received later has a shorter life, it is shipped first. Section 5.5 of the EU Good Distribution Practice (GDP) Guidelines requires medicinal product stocks to be rotated according to the FEFO principle and exceptions to be documented; details are in the entry GDP rules for pharmaceutical storage.
| Method | Suitable products | Data tracked | Compatible racking layout |
|---|---|---|---|
| FIFO | Spare parts, textiles, electronics, packaging | Goods receipt date | Flow (gravity) racking, drive-through racking accessible from both ends |
| LIFO | Bulk and non-perishable materials | Order of receipt is sufficient | Drive-in racking, push-back racking, open storage yard |
| FEFO | Pharmaceuticals, food, cosmetics, chemicals | Lot number and expiry date | Selective racking with direct access to every pallet |
How does the method change the warehouse layout?
The issue rule does not stay on paper; it is reflected in the type of racking. In drive-in racks loaded and unloaded from one side, the pallet that entered the lane last comes out first; this structure inherently works as LIFO. If FIFO is required, either a drive-through layout accessible from both ends or flow racking, in which the pallet slides to the front face under its own weight, is installed. Under FEFO, the location and lot information of each pallet must be held in the system; selective racking with individual access is therefore preferred, and the pick list is generated by the warehouse management system (WMS). The capacity and cost differences between rack types are compared under warehouse racking systems.
How is FEFO applied step by step?
- At goods receipt, each pallet is given a readable label with its batch number, production date and expiry date.
- In the WMS, the issue rule and, where needed, a minimum remaining shelf life per customer are defined on the product card. For example, if a buyer accepts only products with at least half of their shelf life remaining, the system will not allocate a shorter-life batch to that order.
- When the picker scans the pallet with a handheld terminal, the system rejects the wrong batch.
- The report of stock approaching its expiry date is monitored regularly; batches that cannot be sold are moved to a quarantine location.
- In periodic counts, discrepancies are investigated by lot; in a warehouse applying FEFO, the warehouse stock count is also broken down by lot and expiry date.
Can LIFO be used in accounting?
Independently of the physical flow, the TMS 2 / IAS 2 Inventories standard based on IFRS does not allow LIFO for calculating inventory cost. For interchangeable inventories, only the FIFO and weighted average cost formulas are accepted. For tax valuation, the provisions of the Tax Procedure Law (Vergi Usul Kanunu) must also be checked. Warehouse operations do not have to be set up according to the accounting method; many businesses ship by FEFO and value by average cost.
Common mistakes
- Applying FIFO instead of FEFO to products with a shelf life: a batch that arrived later but has a shorter life is forgotten on the shelf.
- Installing drive-in racking and expecting a FIFO flow.
- Keeping lot information only at pallet level; when the pallet is split, traceability is lost.
- Putting returned products back on the shelf as new stock without inspection.
How does Voltim Global support you on this?
In the warehousing and distribution operations it runs with partner warehouses, Voltim Global links batch and expiry date tracking to the shipment plan. Which issue rule will be applied for each product type is agreed with the customer before the goods enter the warehouse.