What is FEFO?
FEFO stands for “First Expired, First Out”. FEFO is an inventory management method that is used for perishable goods, where the items that expire first are prioritized to be sold or used first.
An example of FEFO in use is in a grocery store’s inventory management. Let’s say a grocery store receives a shipment of fruits, some of them are bananas, the bananas have a shelf life of a week. The store receives a shipment of 100 bananas on Monday and another shipment of 50 bananas on Wednesday.
Under the FEFO method, the store would sell the bananas from the Monday shipment first, as they will expire first. The store would sell the first 25 bananas from the Monday shipment, and then move on to the Wednesday shipment to sell the remaining 25 bananas.
The store would repeat this process until all the bananas are sold before they expire. This way, the store is ensuring that it is selling the perishable goods that expire first, which helps to minimize the risk of having to throw away spoiled or expired items.
FEFO Advantages
Avoids spoilage and waste: By selling or using the products with the earliest expiration date first, FEFO minimizes the chances of having to throw away spoiled or expired items which can help to reduce costs. This is the reason that the FEFO method is particularly useful for managing perishable goods such as food and medical products.
Reduced liability: By using FEFO, businesses can reduce the risk of liability from selling or using expired goods, as they are ensured that their goods are always fresh and safe to use for the customers.
Can help to improve customer satisfaction: By ensuring that the items being sold or used are still fresh and of good quality, FEFO can help to improve customer satisfaction.
FEFO Disadvantages
Limited ability to manage stockouts: FEFO doesn’t provide a lot of flexibility when it comes to managing stockouts, so it may not be the best choice for businesses that need to keep close tabs on their inventory levels.
Difficulty of tracking expiration dates: FEFO can be difficult to implement if it is hard to track expiration dates. This may require additional labor costs to keep track of expiration dates and rotate stock.
Can be difficult to implement: FEFO can be difficult to implement, particularly for items that have varying expiration dates.
Can result in higher carrying costs: If older items are not sold or used quickly enough, the cost of storing them for an extended period of time can become significant.
May not be the best option for certain types of inventory: FEFO may not be the best option for certain types of inventory, such as items that have a long shelf life.
