Inventory management is necessary required for product-oriented business.This business needs proper inventory management where the warehouse is the most important location. Optimizing the warehouse and managing the flow of goods is the key to your business success. The business that depends on how efficiently and rapidly the products are delivered to the customer, needs appropriate inventory system.
In general, there are three types of inventory management system:
- FIFO
Companies that apply First In, First Out method assume that the first goods purchased for resale are the first goods sold. The economic fluctuations and the risk of increased production cost, FIFO is considered to be more profitable. For instance, a bakery purchases bread at the regular period to stock. When customers purchase the bread, the owner put the oldest package to the front shelf and replace newer package behind. The package with nearest expired dates should be sold first, and the later expired date sold after the previous ones. The older products are sold before obsolete and become profit lost.
- LIFO
LIFO, Last In First Out means the products which are purchased in the last, moves out first.LIFO principle depends on the price of goods fluctuates based on the economy. If the price of goods has increased since the initial purchase, then the cogs measurement will be higher and reduce profits.
- FEFO
First Expired, First Out is the method applies to organize, handle, and prioritize the material movement. This method requires the order of items with the earlier expired date are moving out first. Logistic and transportation, inventory flow and warehouse management mostly applied this method. In FEFO warehouse management, the products are dispatched from the warehouse according to their expiration date. For logistic and transportation, the products with an earlier expiry date are delivered first. In the food industry, this method is necessary to monitor the expired date.
Most businesses have requirements of FIFO, LIFO, and FEFO set up for the warehouse management. Establishing the proper warehouse management in the business is the key to your business growth.
