FIFO Vs. LIFO | Facility Management System

FIFO Vs. LIFO in facility management system are the most common methodologies in inventory management. These two models are one opposite another in meaning and in the methodology of work. This means that FIFO is an abbreviation for First In First Out and LIFO is an abbreviation for Last In First Out.

In this article, we will know more about these two methodologies in facility management; the definition, advantages for both of them.

The definition of FIFO:

FIFO is an abbreviation for First In First Out and it is a system for managing inventory that works as first in first out system. The system works on saving the recent products received until the last product in the inventory has shipped or used.

The Aim of FIFO:

The goal of FIFO at inventory management system is to ensure the oldest products in the inventory to be used firstly and to reduce costs associated with obsolete inventory.

Advantages of Using FIFO in Your Warehouse

Using FIFO system at your facility helps your facility a lot to manage the inventory. First of all, which is one of the most significant advantages is using using first in, first out in your warehouse.

Warehouse inventory helps your facility to solve all your facility’s problems with the changes costs of inventory, up and down costs.

Using FIFO at your company, your inventory bottom line will be approximate nearly to the current market value.

Other advantages of using the FIFO method is its ease to apply at your facility whatever your company size whether it is large or small. Also, its acknowledgement of the fact that companies cannot manipulate income by choosing which unit to ship.

Disadvantages of Using FIFO in Your Warehouse

Because prices have risen nearly constantly for years, the FIFO method can make it appear as though your company has a greater cash flow than it does.

One of the most dangerous disadvantage of using FIFO that can affects negatively on the company and its warehouses is that it typically fails to show the accurate amount of costs when material prices increase rapidly.

Company’s costs that used for months or years do not help managers’ facility to determine the exact issues of cost quickly. Furthermore, most companies also miss out the tax advantages of LIFO.

Another disadvantage of FIFO is using it on paper, that companies are making a larger profit than they are when they are using data and costs on paper than software.

On the other side, there is another definition in facility management system which is LIFO.

The Definition LIFO:

LIFO is an abbreviation for Last In, First Out is and it is a contrast to the FIFO system. LIFO is a system for managing inventory that works where the products with a low turnover rate, since it is the process used to sell or ship products manufactured or stored later first and those that are manufactured or acquired early last.

Advantages of Using LIFO in Your Warehouse

Companies that use the last in, first out method gain a tax advantage because the method assumes the most recently product in the inventory is what is sold.

As inflation continues to warehouse, LIFO produces a higher cost of goods sold and a lower balance of leftover inventory. The higher cost of goods sold results in a smaller tax liability because of the lower net income due to LIFO.

Disadvantages of Using LIFO in Your Warehouse

LIFO is more difficult than FIFO in maintaining because you can face some obstacles for never being ship or sell the products in inventory. It is not recommended to use LIFO at your company if you have perishable products on the shelf that may expired nearly before they are sold or shipped.

Another disadvantage of using LIFO is more complex in records and accounting practices because the unsold products of inventory costs do not leave the accounting system.

LIFO is not considered the ideal method for businesses expanding globally because a number of international accounting standards do not allow LIFO valuation.

FIFO Vs. LIFO in facility management system is an important methods to be used in your inventory’s company. there is Pros and Cons in using FIFO and LIFO so you need to be careful with when you are using it at your facility.