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What does FEFO Mean? The Differences Between FIFO and LIFO in Storage of Goods

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What does FEFO Mean? The Differences Between FIFO and LIFO in Storage of Goods

In the case of storage products, a number of influencing elements, including FEFO, FIFO, and LIFO, are present from the time the goods are first issued and sold until they reach the buyers' hands. So what does FEFO actually mean?

Of course, in order for the company to start to function properly, you need to comprehend the science of storage and warehousing.

It may seem insignificant, but failing to implement this strategy in your company will result in losses since you risk stockpiling items in the warehouse to the point where they are suddenly no longer desirable for sale.

To prevent this, take into account the following explanation when determining which sorts of commodities are supplied first using the FEFO, FIFO, and LIFO factors. Take into account the following instances of FEFO implementation in the business sector.

Understanding the FEFO, FIFO, and LIFO Methods

1. First Expired First Out (FEFO) Method

The first expiry, first-out approach is a way of prioritizing the distribution of things that will reach their expiration date first.

By using this technique, the company's loss from using expired products or unsold merchandise is reduced to a minimum. In order to prioritize selling products that are nearly out of date to customers first.

This technique is frequently used in pharmacies or medical facilities that sell food and drinks with expiration dates. Products whose validity time is about to expire are stored by positioning them in front of other products.

Therefore, sell the things with the earliest expiration dates first, followed by those with later expiration dates. The type of brand, the type of product, and the product regulation system at the manufacturer or agent can all have an impact on whether or not a product has the latest expiration date, even though some items access the market sooner.

2. First In First Out (FIFO) Method

This first-in, first-out method assumes that the first item purchased is the first item sold. Furthermore, the last item purchased is the item remaining as inventory.

The term "FIFO" refers to a strategy of managing a stock of goods in which the things that arrive first must be sold before the goods that arrive later.

The earlier unit costs will be less than the most recent unit costs when the FIFO approach is applied during inflationary periods.

As a result, this approach will produce larger gross profit. 

3. Last In First Out (LIFO) Method

The last in, first out method is the method in which the last in goods will be sold or issued first or must be sold as soon as possible.

Adapted from the book "Introduction to Indonesian Accounting-Adaptation", this method assumes that the last purchased item is the first item sold.

Goods that use the LIFO stock method are the types of goods that do not have an expiration date so sellers do not have to worry about storing these items for a long time.

When the LIFO method is used during periods of inflation, the results will be in contrast to other methods. The LIFO method results in a higher amount for cost of goods sold (COGS), a lower amount for gross profit, and a lower amount for ending inventory.

Examples of FEFO Implementation in Various Companies

The FEFO method is usually used in warehouse management in industries engaged in food, beverage, and pharmaceuticals.

1. Pharmaceutical Industry

Quoting from the book "Pharmacy Logistics Management in Hospitals" by Dra.Irmawati, Apt.SpFRS.MARS.PGDHSc in 2014, in the storage and preparation of drugs, drugs with an earlier expiration period must be used earlier because those that arrive earlier are usually also produced earlier. its initial and purity is relatively older and its expiration date may be earlier.

So the incoming drugs will be recorded based on their expiration date and drugs with the closest expiration date must be placed at the very front for sale first.

So it can be concluded that the management of drug use must also be done as well as possible so that drugs with the fastest expiration time are used first.

2. Food and Beverage Industry

To maintain freshness and quality, goods whose basic ingredients spoil quickly or don't last long will be distributed first. Because it constantly offers new items, for instance, healthy foods and beverages without preservatives, it is very helpful for your health.

Food and beverages undoubtedly have an expiration date, thus it is necessary to sell any things that are about to reach that date in order to avoid losing money.

The quality of the products sold will always be maintained by using the proper methodology.

Hopefully this article is useful to you.

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