What does the term "FIFO" stand for in inventory management?

The term "FIFO" stands for "First In, First Out" in inventory management. This method is crucial for managing inventory efficiently, particularly for perishable goods or items that may have expiration dates. FIFO ensures that the oldest stock is sold or used first, minimizing the risk of obsolescence or spoilage. By adhering to this system, businesses can maintain quality and ensure that customers receive the freshest products available.

In practical terms, implementing FIFO helps in accurate inventory valuation and effective stock rotation, which are vital for both financial reporting and operational efficiency. The method also aligns with accounting principles, as it affects the cost of goods sold and overall profitability. Organizations that utilize FIFO can effectively manage their inventory while sustaining customer satisfaction through quality control.