FIFO ensures freshness, quality, and traceability, while LIFO saves space and costs. And there’s also the NIFO principle, where inventory is valued based on future purchase prices to reflect market conditions more realistically. Want to know more? No problem. We’ll explain the differences and application areas of these principles in warehouse administration.
Choosing the right warehouse management strategy is a central decision in modern warehouse administration. It impacts not only the physical structure of your warehouse but also its economic efficiency, stock tracking, and the accounting valuation of stored goods. In times of rising storage costs, fast-moving goods, and increasing traceability demands, efficient warehouse management is more important than ever. But which method is right for your warehouse? We’ll explore how FIFO, LIFO, and NIFO perform in practice –and how they affect your logistics, warehouse management, and costs.
FIFO: The Freshness Favorite in the Warehouse
Key features of the First in, First out principle:
- Freshness and quality assurance: Older items are picked first. Ideal for perishable or time-sensitive goods.
- Traceability and transparency: Batches can be well documented and fully traced.
- Simple and intuitive system: Easily integrates into existing workflows and is often supported by standard warehouse equipment and software.
Timely dispatch: FIFO ensures quality and freshness
FIFO warehouse management is based on the principle that the first items stored are also the first to be retrieved. As the name suggests: First in, First out. This strategy creates a systematic stock rotation and minimizes average product dwell time. It’s especially effective for perishable goods.
Where FIFO works best in practice
FIFO is ideal for products that age naturally or are subject to regulated shelf-life requirements – common in the food, pharmaceutical, cosmetic, and chemical industries. It’s also suitable for electronics or seasonal consumer goods, allowing forward-looking and value-oriented warehouse management.
How FIFO is applied in warehouse administration
There are various ways to implement FIFO. Generally, two approaches are distinguished:
- Shelving systems where loading units move automatically (via gravity or automation).
- Shelving systems where forklifts enter aisles to selectively store and retrieve goods.
These shelving types support effective FIFO warehouse management:
Flow racks
These racks use slightly inclined roller tracks. Pallets automatically roll from the loading side to the picking side. When a pallet is removed, the next one slides forward – enabling FIFO with minimal manual effort.
Automated small parts storage (AS/RS)
Automated systems transport containers or trays using robotic devices. A software system ensures that the oldest storage unit is always picked first – digitally enabling FIFO.
Centrally managed picking zones
A warehouse management system (WMS) monitors stock levels and organizes storage locations by entry date, ensuring FIFO compliance. This makes inventory movements transparent and traceable at all times.
Advantages of FIFO
The greatest benefit of FIFO lies in managing products that lose value over time – due to perishability or limited shelf life. Here are its key benefits:
Consistent storage times: Goods stored first are also retrieved first, keeping inventory turnover steady.
Less waste: According to lean logistics principles, waste should be minimized. FIFO reduces value loss from aging, damage, or rust, cutting down on warehouse waste.
Traceability in case of issues: In production-linked warehouses, FIFO improves the ability to trace product-related problems through a defined processing sequence.
Workflow integration: FIFO shelving enables streamlined stock flow – goods enter on one side and exit on the other, optimizing the connection between storage and picking areas.
Financial benefits of FIFO
FIFO reduces losses from outdated or expired goods. It meets regulatory requirements for traceability without extra overhead, increases planning certainty, and improves accuracy in inventory valuation – especially in dynamic warehouses.
LIFO: Last in, First out!
Key features of the Last in, First out principle:
- Newest goods are picked first: New items are more accessible and used first.
- Easily implemented in block or stack storage: Suitable for simple pallet storage without complex shelving systems.
- Shorter routes, higher space efficiency: Often cost-effective due to reduced travel time and optimized use of space.
How LIFO works in warehouse administration
LIFO reverses the storage sequence – the last items stored are the first to be retrieved. It’s suited for goods where storage time doesn’t affect usability or quality, often used for uniform products with low urgency.
Where LIFO works in industry and commerce
LIFO is common for building materials, raw goods or hardware – items that aren’t perishable or seasonally affected. It’s also suitable for operations using large volumes of the same material, especially where simple processes and space-saving are critical.
Racking solutions for LIFO
To enable LIFO warehouse management efficiently, storage systems must allow quick access while saving space. Suitable racking types include:
Push-back racks
Pallets rest on sliding carts along inclined rails. Inserting a new pallet pushes existing ones back. Upon retrieval, the front pallet automatically rolls forward.
Drive-in racks
Forklifts enter aisles from one side to both store and pick goods – naturally creating a LIFO system. These racks save space and suit facilities with low product variety.
Pallet shuttle systems
A semi-automated shuttle moves pallets through storage channels. In LIFO mode, it retrieves the last stored pallet first. This setup suits deep storage areas with high turnover.
Advantages of LIFO
The main benefit of LIFO is maximizing warehouse capacity. If access is needed only from one side, you eliminate the second working aisle – saving both space and operational steps.
Key advantages of LIFO warehouse management:
More storage capacity: Reclaim space for more pallets by removing unnecessary aisles.
Cost savings: Reduced footprint means lower storage costs.
Flexible space usage: Freed-up space can be used for receiving, picking, or shipping zones.
Financial efficiency of LIFO
LIFO requires only one access side, creating compact layouts. It enables better space utilization, reduces relocation effort, and lowers operating costs – ideal for high-capacity, low-variance warehouses.
Forward-Thinking Planning with NIFO
Key features of the Next in, First out principle:
- Used mainly for controlling: NIFO is not a physical warehouse strategy but a valuation method for pricing and calculation.
- Valuation based on future purchase prices: Stock is valued according to expected costs of the next delivery.
- Useful for volatile markets: Supports realistic planning in sectors with fluctuating prices.
How NIFO works as a valuation method
Instead of valuing goods based on past purchase prices (as with FIFO or LIFO), NIFO uses the anticipated cost of the next procurement. It’s used for internal calculations only and has no impact on official accounting.
Strategic applications of NIFO
NIFO is useful in industries with high price volatility or project-based procurement, such as mechanical engineering, electronics, or raw materials trading. Here, realistic pricing can influence bidding success.
System requirements for NIFO
NIFO does not dictate a physical storage method – you can combine it with FIFO, LIFO, or random storage. What matters is ERP or WMS support, using the price of upcoming orders for valuation. It’s based on calculation rules, not physical inventory.
Benefits of NIFO for pricing and planning
NIFO gives a more accurate picture of future procurement costs, enabling realistic price quotes and contribution margin analysis – improving purchasing decisions and sales strategy.
Limitations of NIFO
NIFO is not accepted for financial reporting or tax purposes. It’s solely for internal use and doesn’t influence warehouse operations or physical stock movements.
Comparing Inventory Methods: Decision Criteria at a Glance
When searching for the right inventory method, FIFO and LIFO are your primary options. NIFO provides valuable insights but is not a physical warehouse method – it’s an optional internal calculation tool.
Your decision should factor in product characteristics, infrastructure, turnover frequency, and business goals. If quality and traceability are your focus, FIFO is ideal. If space and cost efficiency matter most, LIFO may be better. In reality, a combination is often most effective, and modern warehouse management systems should support multiple strategies simultaneously.
Conclusion: Strategic Warehouse Management as a Key to Success
Professional warehouse administration goes beyond stock tracking. It’s a crucial lever for profitability, delivery performance, and customer focus. With a full understanding of FIFO, LIFO, and NIFO, you can build a transparent, efficient, and scalable warehouse structure. In fast-paced markets, the ability to manage inventory flexibly and value-consciously is a significant advantage. Companies that plan strategically and embrace modern technologies lay the foundation for long-term success across the supply chain.