FIFO Inventory Management

FIFO in Textbooks — Just One Simple Sentence

Theory states that FIFO is an inventory management method where "items received first must be issued first." The logic behind this principle is clear:

• Reduces expiration risk — Older stock is used first, preventing spoilage.
• Costs reflect reality — Recorded costs match actual purchase prices in chronological order.
• Compliant with accounting standards — FIFO is accepted under TFRS/IFRS for both cost of goods sold and inventory valuation.
• Easy to audit — Auditors can clearly verify the sequence of receipts and issues.

But all of this theory assumes that "the warehouse can organize items in order" — which in practice is far from easy.

The Reality in Warehouses — Why FIFO Doesn't Happen Automatically

Picture a typical warehouse:

This isn't about workers being careless — it's because the physical layout doesn't support FIFO principles.

Key Reasons FIFO Fails in Practice

Cause	What Happens
Single-entry shelving (load and pick from the same side)	New stock is placed in front of old stock, naturally becoming LIFO
No lot labels or receipt date indicators	Pickers don't know which is older, so they grab the most convenient item
No bin location management system	Identical items are scattered across multiple locations with no way to tell which is older
Warehouse staff are rushed with no time to organize	Large shipments are placed wherever there's space to get it done quickly
Aggregated stock recording system	Only knows there are 200 units but not how many lots or their receipt dates

Costing Methods Compared: FIFO vs LIFO vs Weighted Average

Before jumping to solutions, let's understand why FIFO matters by comparing it with other methods:

Aspect	FIFO	LIFO	Weighted Average
Principle	First in, first out	Last in, first out	Weighted average cost
Best suited for	Perishable goods, government supplies	Highly volatile-priced goods (not common in Thailand)	Homogeneous items with similar prices
Advantages	Reduces expiration, costs reflect reality	COGS closely matches market prices	Easy to calculate, no lot separation needed
Disadvantages	Requires tracking every lot	Not accepted under TFRS/IFRS	Cannot trace back to the original lot
TFRS/IFRS	Supported	Not supported	Supported

For most organizations in Thailand, especially government agencies and entities required to report under accounting standards, FIFO is the most suitable method because it both reduces losses and meets audit standards.

How to Organize Your Warehouse for Real FIFO

Making FIFO a reality requires addressing both physical (warehouse layout) and system (software) aspects simultaneously:

1. Physical Solutions — Design the Warehouse to "Enforce" FIFO

• Use flow racks (gravity racks) — Inclined shelving where items are loaded from the back and flow to the front via gravity. Pickers always take from the front, creating automatic FIFO.
• Separate receiving and issuing zones on opposite sides — With standard shelving, load from the back and pick from the front, never from the same side.
• Label lot numbers and receipt dates — Every box and pallet must display when it was received and its lot number, clearly visible.
• Use color-coded stickers by time period — For example, red stickers = January, green stickers = February. A quick glance reveals which stock is older.

2. System Solutions — Let Software "Enforce" FIFO

• Lot Tracking — Every time stock is received, the system records the lot number, receipt date, expiry date (if applicable), supplier, and unit cost for every item.
• Bin Location — Define storage positions in the system, such as Shelf A-03-02 meaning Zone A, Row 3, Slot 2. When issuing, the system directs: "Pick from Shelf A-03-02, Lot #2024-0115."
• FIFO Auto-Pick — The system automatically selects the oldest lot when issuing stock. Warehouse staff don't need to think — they simply follow the pick list generated by the system.
• Expiry Alert — Advance notifications when items are nearing expiration, before it's too late.

3. Process Solutions — Build FIFO Habits

• Iron rule: Never place new stock in front of old stock — New arrivals must go behind existing stock or in a separate zone.
• Regular cycle counts — Don't wait for year-end stock takes. Count zone by zone, shelf by shelf, on a rotating basis. Catch problems early, fix them fast.
• Train warehouse staff — Help them understand "why FIFO matters" rather than just saying "you must do it." Explain that "if we don't, goods get damaged and the organization loses money."

Comparison: Warehouse Without a System vs With an ERP System

Scenario	Traditional Warehouse (Excel + Memory)	Warehouse with ERP System
Receiving Goods	Written in a notebook or Excel, items placed anywhere	Scan barcode, auto-record lot + bin location
Issuing Goods	Grab the most convenient item, unaware which lot is oldest	System directs: "Pick Lot #0115 from Shelf A-03-02"
Stock Counting	Once a year, large discrepancies found, too late to fix	Weekly cycle counts, minor discrepancies fixed immediately
Expired Goods	Discovered by chance, discarded and recorded as a loss	Advance alerts at 30/60/90 days
Cost of Goods Sold	Calculated at month-end, largely estimated	System calculates FIFO cost in real-time for every transaction
Auditor Inspection	Cannot find documents, cannot explain	Pull lot traceability reports instantly

Which Items Need the Strictest FIFO?

Not everything in the warehouse needs equal FIFO rigor. Here's a prioritization guide:

• Strict FIFO required: Raw materials with expiry dates, pharmaceuticals, food, chemicals, printer ink, moisture-sensitive paper
• FIFO recommended: Office supplies, machine spare parts, items with frequently changing prices
• FIFO or Average is fine: Non-perishable items with stable prices, such as nuts, screws, and metal hardware

How Saeree ERP Supports FIFO

Feature	Description
Lot Tracking	Records lot number, receipt date, expiry date, supplier, and unit cost for every receipt
Bin Location	Define storage positions. The system tells you exactly where to pick.
FIFO Auto-Pick	When issuing, the system automatically selects the oldest lot. Staff simply follow the pick list.
Expiry Alert	Advance alerts when items are nearing expiration
FIFO Cost Calculation	Automatically calculates cost of goods sold in FIFO order, compliant with TFRS/IFRS
Lot Traceability	Trace any lot back to its supplier, receipt date, and who it was issued to
Cycle Count	Schedule rotating stock count plans by cycle — no need to wait for a single year-end count

Conclusion

FIFO in textbooks is just a four-letter acronym, but in a real warehouse, it requires designing an entire system — from shelving, labeling, and receiving/issuing processes to software that enforces FIFO compliance.

If your organization still manages stock with Excel or notebooks and hopes to achieve FIFO — it won't happen on its own. Human nature is to grab what's closest at hand, which is almost always the newest stock.

A good ERP system doesn't just "record stock" — it must "enforce FIFO in practice" from the receiving stage all the way through to issuance.