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What is fifo and lifo and its importance in retail

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FIFO Y LIFO

Inventory management is very important for the profitability of the business retail, and to help us in this task there are two approaches that you should know: fifo and lifo

Choose the method of inventory valuation  right is a crucial step for every retailer and can have a significant impact on the profitability generated.

First of all we must be clear that a good logistics is critical to help the store to overcome the competition. There is a need to ensure that your products are in the right place at the right time to be the best purchase option for customers.

The warehouses of goods may not seem like the most important places or showy, but the administration of these and the management of your stock is the backbone of the logistics of the store.

What is the meaning of FIFO AND LIFO?

FIFO: First-in, first-out.

This definition is as deceptively simple as it seems, because through this method, the first batch of stock that comes to your store should be the first to leave, that is to say, it is sent to the stores or being sent directly to the customers who buy online.

LIFO: The last in, first out.

It works in reverse of the Fifo method, and this method means that the latest stock that enters your store must first be sent. That is to say, what is new is first used, having priority over the stock's oldest.

1. Advantages of FIFO

The strategy of first-in, first-out is a very good option if you sell products that have a shelf life. May be perishable goods such as food, articles that have a cycle, or season, defined as the fashion or products that could become outdated, such as anything related to technology.

Due to the nature of this kind of products, I definitely need to move everything between the first to the stock, as in the case of sit back and watch how they sold other items, then you will probably lose money as they expire, to pass out of fashion or no longer the latest model.

For example; if this is the refrigerator of a supermarket  where sells milk of short duration, the idea would be to make the first batch of milk to the front of the refrigerator, it is useless to put the milk cooler in the front as you run the risk of the lot closest to expiration is lost because of a bad strategy.

inventario en retail

2. Advantages of LIFO

The procedure of last-in, first-out assumes that the goods purchased in the last place are the first goods sold. When prices are rising and the recent purchases have a higher price that the goods purchased are in an earlier time period, LIFO results in a higher cost of goods sold and an income lower than that of the FIFO.

However, LIFO compare best current income with the expenses current FIFO, and as a result, more accurately reflects the actual cost of the goods sold. In turn, FIFO reflects more accurately the value of inventory in those units that remain in the inventory at the end of an accounting period, reflecting the current costs.

When it comes to LIFO and management of warehouses, this method is really only used for homogeneous products, such as coal, sand, stone, or bricks. When a batch comes into the store, placed above the previous batch and the newest is the first to be used.

Partner with the technology

The dynamics of stores, data-driven that mark the current trend in the trade, retail, makes it necessary to integrate technology in the management of the processes, for this there are various solutions that facilitate this work and have been developed by the startup, Latin american Intelligenxia.

Their systems allow you to observe real-time data specific aspects which are so important for the management of the store such as; the provision of floor, the availability and display of goods and to receive a warning of a breakdown in stock.

To obtain these solutions, we invite you to consult their portfolio where you can taste the App head shops  and Management Retail expert level

Conclusion

Then... whatfifo or lifo? There really is no right or wrong answer to this question as it will depend on the kind of products that your store sells. In the case of perishable goods, or products with a short life cycle, the choice is easy since you use FIFOyou run the risk of losing money.

For other types of products, you may need to meet with your accountant or responsible in taking care of the finances of the store in order to be able to calculate if LIFO it is the best way of move stock in and out of your stock

Comments

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09 Mar 2024

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