Introduction
Efficient stock management is essential for keeping logistics operations agile, avoiding losses and guaranteeing customer satisfaction. Among the main methods used by companies to organize product output are FIFO, FEFO and LIFO.
In this article, we'll explore what each acronym means, how they work in practice and what the operational, financial and fiscal impacts are of choosing one method or another.
What are FIFO, FEFO and LIFO?
- FIFO (First In, First Out) - "First in, first out". This is the most common model in inventory management, especially in sectors where products have a shelf life or are obsolescent, such as food and electronics.
- FEFO (First Expire, First Out) - "First to expire is first to leave." This method prioritizes the exit of products with the closest expiration date, regardless of the order of entry. It is essential in the pharmaceutical, food and cosmetics industries.
- LIFO (Last In, First Out) - "Last in, first out." Much more commonly used in accounting and financial environments, LIFO prioritizes the use of the latest products. It can be advantageous in inflationary contexts, but is not permitted by international accounting standards (IFRS).
Advantages and disadvantages
| Method | Advantages | Disadvantages |
| FIFO | Reduces expiration losses, facilitates audits, improves turnover | It can generate higher profits in inflationary periods, increasing the tax burden |
| FEFO | Minimizes maturity risks, increases regulatory compliance | Requires tracking by batch and expiration date, which requires more robust systems |
| LIFO | Reduces taxable income by inflation, favoring cash flow | Can leave old products in stock for too long and is not accepted by IFRS |
Practical applications by sector
- Food and drink: FEFO is essential to avoid expiration dates and guarantee quality.
- Pharmacist: FEFO also stands out because traceability is mandatory.
- Durable goods retail: FIFO is preferred to maintain turnover and avoid outdating.
- Chemical or metallurgical industries: LIFO can be useful in stable environments where there is no risk of expiry.
Tax and accounting impacts
In countries that follow IFRS standards (such as Brazil), LIFO is not accepted for accounting purposes. Nevertheless, it can be used internally for cost control or cash flow simulations.
FIFO, on the other hand, prioritizes products with older costs and tends to generate higher accounting profits in contexts of inflation - which can increase the tax burden. On the other hand, it better reflects operational reality and facilitates audits.
Technology as an ally
The adoption of WMS (Warehouse Management System) systems and ERPs with specific functionalities for expiry control, traceability and picking rules is essential to implement FEFO effectively. These systems enable:
- Registration by batch and expiration date
- Automatic alerts for upcoming due dates
- Separation rules based on the chosen method
- Integration with accounting and demand planning
How do you choose the best method?
The decision on which inventory management format to adopt must be taken into account:
- The nature of the products (perishable or not)
- The legal and regulatory requirements of the sector
- The company's financial and fiscal objectives
- The maturity of internal systems and processes
In many cases, a company can adopt different methods for different product categories. The important thing is to have clear criteria and a control system capable of guaranteeing the execution of the defined strategy.
Conclusion
The choice between FIFO, FEFO and LIFO goes far beyond an operational decision. It is a strategy that directly impacts costs, quality of service, regulatory compliance and the company's financial health.
Regardless of the method, having reliable data and integrated systems is the starting point for truly efficient inventory management.
Do you want to understand which method is ideal for your type of operation?
Talk to Linear and see how we can help you optimize stock control with technology, data and practical results.
