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Implementing FIFO and LIFO: Best Practices for Inventory Rotation

Effective inventory management is crucial for maintaining profitability and efficiency in the food and beverage (F&B) industry. Two widely recognized methods for inventory rotation are FIFO (First In, First Out) and LIFO (Last In, First Out). Each method has its benefits and specific applications, and understanding how to implement them correctly can significantly enhance your inventory control. Here's a detailed look at both practices and how to best apply them in your F&B business.

Understanding FIFO and LIFO

FIFO (First In, First Out): FIFO is a method where the oldest inventory items are used or sold first. This approach is particularly beneficial for perishable goods, as it ensures that older stock is utilized before it spoils. FIFO helps maintain product freshness, reduces waste, and improves cost control.


LIFO (Last In, First Out): LIFO is the opposite of FIFO, where the most recently acquired inventory is used or sold first. While less common in the F&B industry due to the nature of perishable goods, LIFO can be useful in specific scenarios, such as managing non-perishable items or during periods of rising costs to match the most recent, higher costs against current revenues.


Best Practices for Implementing FIFO


1. Organize Storage Areas: Design your storage spaces to facilitate FIFO implementation. Arrange shelves so that new stock is placed behind older stock, ensuring the oldest items are always at the front. Clearly label shelves and sections to indicate the direction of stock flow.


2. Use Clear Labelling: Label all products with receiving dates. This practice helps staff easily identify which items to use first, preventing confusion and ensuring compliance with FIFO principles.


3. Train Staff: Educate your team on the importance of FIFO and how to implement it correctly. Regular training sessions can help reinforce the practice and ensure everyone understands their role in maintaining inventory rotation.


4. Monitor Stock Levels: Regularly review inventory levels and usage patterns. Conduct periodic checks to ensure that the oldest stock is being used first and that there are no overlooked items that could spoil or expire.


5. Implement Technology: Use inventory management software to track stock levels and automate FIFO processes. Technology can provide real-time data, alert you to aging stock, and streamline reordering processes.


Best Practices for Implementing LIFO


1. Identify Suitable Items: Determine which inventory items are suitable for LIFO. Focus on non-perishable goods or items that are not prone to spoilage. This method is generally less applicable to perishable goods due to the risk of waste.


2. Efficient Storage Solutions: Organize your storage areas to facilitate the LIFO process. Ensure that new stock can be easily accessed and utilized first, with older stock stored separately to avoid confusion.


3. Accurate Record-Keeping: Maintain detailed records of stock receipts and usage. Accurate documentation helps in tracking inventory flow and ensuring that the most recent items are used first.


4. Regular Audits: Conduct regular inventory audits to verify that the LIFO method is being followed correctly. Audits help identify discrepancies and provide an opportunity to make necessary adjustments.


5. Leverage Software Tools: Utilize inventory management software that supports LIFO tracking. Such tools can automate the process, reduce manual errors, and provide valuable insights into inventory trends and costs.


Choosing the Right Method Choosing between FIFO and LIFO depends on your inventory and business needs. FIFO is ideal for perishable goods to reduce waste and maintain quality, while LIFO can benefit non-perishables or manage costs during inflation. Barometer Technologies offers tailored solutions to help you choose the best strategy for optimal efficiency and profitability.


Overall Implementing FIFO and LIFO effectively requires careful planning, organization, and ongoing management. By following best practices, training staff, and leveraging technology, you can optimize inventory rotation, minimize waste, and improve overall efficiency. Whether you choose FIFO, LIFO, or a combination of both, the key is to align your inventory management strategy with your business goals and operational needs.

Want to learn more about Barometer Technologies or the topics discussed in this post?

Click Schedule a Chat to schedule a demo with our team today, to get a more hands-on look at how Barometer will help you run a better business.

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