What is the FIFO principle?

The FIFO (first in, first out) consumption and storage principle states that goods that were stored first are removed first. The process therefore follows the chronological inflow of stocks and ensures that older items take priority. This creates a natural flow of goods that specifically reduces aging, loss of value, or spoilage.

Areas of application

The FIFO principle is mainly used in industries where freshness and shelf life are of crucial importance. These include food, beverage, and pharmaceutical logistics, but also the chemical industry and production companies that work with sensitive raw materials. Consistent rotation of stocks prevents goods from becoming obsolete, unusable, or having to be written off.
The FIFO principle can be implemented particularly well in many storage systems, such as flow racks or areas with high goods turnover. The storage locations are designed so that the oldest items are automatically available first. This supports consistent material flows and creates stable, predictable processes in production and order picking.

FIFO in inventory valuation

In addition to physical warehouse organization, FIFO also has a business management component. When valuing inventories, the method assumes that the oldest items are used first. As a result, the older purchase prices are included in the cost of materials used, while the newer and often more expensive items remain in stock. In times of rising prices, this leads to higher-valued remaining stocks. Since this approach corresponds to the actual movement of goods in many companies, FIFO is often considered particularly transparent and practical in accounting.

Advantages and challenges

The key advantage of the FIFO method lies in quality assurance: products do not become obsolete in storage, depreciation decreases, and recall or spoilage risks are minimized. In addition, inventory is easier to track and control because the order of withdrawal remains logical and clear.

At the same time, FIFO cannot be optimally implemented in every warehouse scenario. Block storage, chaotic goods arrangement, or limited access to older loading units make it difficult to consistently adhere to the sequence. In such cases, either structural adjustments or technical support from warehouse management systems are necessary.