Deciphering Inventory Management Techniques for Increased Efficiency

Whether you have a seasoned hand at supply chain management or just launched your first entrepreneurial venture, understanding how to effectively manage material storage and flow in your warehouse is key to keep decreasing lead time for delivery to customers. There are many techniques used for warehouse storage and it can be difficult to decipher which to use and what material handling equipment you might integrate with each. It’s always important to consult with staff accountants before changing methods, as they’ll have the best insight into your unique circumstances. But here’s a quick walkthrough to help you decipher the techniques and start internal conversations if necessary.

Inventory Management Technique: FEFO – First Expires, First Out

With this inventory management technique, you’re likely involved in food distribution (although, these aren’t the only products with expiration dates). FEFO means that you want to move the products with the nearest expiration date out of your warehouse first. If you can effectively do so, you can avoid wasting your valuable products due to expiration losses. Some FEFO operations benefit from flow racking, which automatically rolls new product to the front of the rack when current front product is removed. This often matches up with various types of forklifts that can easily pull materials from high levels.

Inventory Management Technique: FIFO – First In, First Out

In a first in, first out inventory management operation, managers and their operators are less concerned with date of expiration as they are worried about the date a product is no longer useful. The assumption is that the first product that arrives at your facility needs to leave the facility before any product that arrived after it. Operations that have high levels of seasonality often use FIFO to manage inventory, as well as operations that have to be responsive to high rates of customer trends reactions (think textiles and other clothing, where fashion changes quickly). One kind of racking that might be used here is drive through racking, where new product can be loaded behind old product, and the older product can be pulled first. Drive through racking will require forklifts with specialized overhead guards to fit in tight spaces for maximum storage utilization.

Inventory Management Technique: LIFO – Last In, First Out

Last in, First Out operations are based primarily on relieving tax burdens. This management technique involves moving products that arrive to your warehouse most recently before the product that arrived previously. This inventory management is used assuming prices are rising. Profit margins can then be reported based on the cost of the newer, more expensive product. Lower profit margin reporting can relieve tax burdens for warehouses.  While this approach is conducive for relieving tax burdens during a period of rising prices, you should consult with your financial accountant before changing inventory methods to know the full impact and burden of financial and tax reporting.

Companies who have drive-in racks are able to use the LIFO method easily, where forklifts can push older products back to storage and leave new product closer to the front, ready for picking. Specialized overhead guards are required for this type of warehouse operation.

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