FIFO, or first in, first out is a type of inventory management. The principle is that the first item of a particular stock item should be the first one used. To facilitate this, FIFO inventory tracks the landed cost of the products received per purchase order. It knows how much each product cost on each Purchase Order it was received on. This is much more accurate than the alternative: Average Landed Cost where the varying cost of each purchase order is averaged out over all the purchases. In terms of accounting, FIFO takes the true cost of the items dispatched or used on sales or projects as the COGS value.
Why use FIFO Inventory Management?
There are a few ways that FIFO management can benefit your business.
If you work with perishable goods, then FIFO can help you use your older stock first and reduce wastage.
FIFO can also help you ensure that your charging out your work at the right price, easily when there are volatile prices involved. With supply issues with steel and timber currently, FIFO could help you account for your project costs accurately while prices fluctuate. So, if a piece of timber you’ve had for six months costs you $X, whereas a piece this week has cost you $Y, you can quote at the right price for that piece.
Similarly, if prices go down, you can still see that there is inventory you have that will need to be sold at a higher cost still to make money on it.
How can you make FIFO work for you?
Using FIFO with a perpetual inventory management system can help you to stay on top of your stock costs and usage in real-time while you work. Perpetual inventory, as opposed to periodic, you can handle multiple locations or deal with high sales volumes without adding much extra admin time with stock takes.
To keep track of your costs and stock movements accurately, investing in technology that can help you could be crucial and make your life a lot easier. The right tools can make tracking the stock you use and updating the latest pricing effortless for you and your team.
You don’t have to break the bank by investing in the latest and greatest in automation and barcoding either. Tools like WorkGuru can help you without needing to make huge changes to you supply systems.
Want to understand your inventory?
WorkGuru can help you manage your stock, projects and much more all in one place. With loads of powerful features, including par levels, production jobs, and FIFO stock tracking, you can improve the way you manage your inventory.
If you want to see the tools (and many more) in action, you can reach out for a free demo. Get in touch to book a time for a personalised training session.