FIFO, or First In First Out, is everywhere. It’s a problem across the world, in manufacturing and distribution facilities, it’s even a problem in your own fridge.
Think about your lunch. If you bring a salad to work on Monday, eat out instead, then bring in soup on Tuesday, eat out instead again, you are building a “warehouse” of food in the company fridge. When you finally resist the urge to order takeout for the third time that week, the best choice for your lunch would be the salad – first in, first out. This is especially true if the salad has an expiration date creeping up sooner than the soup.
The same is true for manufacturers who follow a FIFO movement strategy in their facilities. The goal of FIFO is to reduce material aging in your warehouse or staging area. Without FIFO, manufacturers can already have materials on hand, not know about it, and pay for things they already have sitting in their inventory. The bigger issue in manufacturing is quality that can diminish with age. This creates problems for the end user and may result in rejection of the material.
FIFO in the Wild
FIFO is especially important in the chemical industry. Many liabilities are present if chemicals sit on the shelves too long. They may not perform properly or even explode in the containers. A proper FIFO inventory management system means the chemicals are used in the order in which they are received. This way, the newest possible raw materials are always in your facility. This contributes to three important factors in the chemical industry: quality, safety, and environmental. Chemicals that expire after sitting in a facility too long can create an unstable, low quality finished product. Expired chemicals can also be unsafe. Chemicals may react differently after they have expired and may be unsafe to manufacture with or transport. When expired chemicals need to be disposed of, this creates more discarded toxic waste, having a negative impact on the environment.
For non-perishable industries, FIFO is a good business practice to keep the flow of material moving. In other industries, like agriculture or some CPG (Consumer Packaged Goods), significant consequences impact food manufacturers due to poor inventory management and non-compliance to a FIFO system. Poor adherence to a FIFO system can result in food spoilage, disease, product recalls, and increased costs. Food recalls have increased over 10% from 2013 to 2018 in the United States. The average food recall has a significant impact on an organization; damage to a brand’s reputation, poorly affected sales performance, and additional costs associated with the recall process. Additionally, an organization could be hit with lawsuits and compliance related penalties. It is estimated that an average cost of a recall in the food manufacturing industry is north of $10 million.
The automotive industry uses FIFO strategies so older parts don’t sit in a warehouse or staging areas. Quality of materials and parts can decrease with age. Some parts need to be installed within a specific time frame to retain their original product specifications. Hoses, belts, and rubber seals are good examples of parts that need to move quickly. If rubber seals sit too long in a facility, they lose their malleable properties. The rubber seal could cause dysfunction for the automobile or even trigger safety issues. Proper visibility of batch lots means that recalls are more accurate and limited to exact production time frames. Movement of elements that have an environmental impact, such as batteries and paint need extra focus when it comes to FIFO. For paint, different batches have different properties, so paint needs to be used within the same batches so that a car door and trunk look the same. Reducing waste by adhering to a FIFO strategy is crucial because having to dispose of hazardous material is not ideal. Post-production inventory management for finished vehicles is important for filling dealership orders to expected features and time frames. Lot rot is also a real problem that occurs for dealerships. Mice and squirrels creating homes in engines, rust, and cars sinking into the mud all cause issues and damage that didn’t exist when the car was produced.
Trusted Technology for a Smarter Inventory Flow
From a big picture perspective, FIFO ensures safety, quality, and proper inventory management. It cuts down on loss and product/quality failure that could lead to recalls.
The right visibility and technology can show you what materials have come in your facility, so you know which ones to move out first – ensuring you stick to your FIFO strategy. The Interius software suite by Surgere gives you the option to set parameters and flag what has been sitting for a selected period of time, whether that be 7 days, 25 days, or 400 days. Inventory Management makes it possible to search by the specific material you are looking for and see its history. With full visibility of your inventory, you can see what is left, how long material sits over time, and a history of the movement of your material.
The same is true for finished products as well. With Finished Goods Management, you can see what final products you have on hand, ensuring you don’t manufacture or build things already in stock. The right visibility tool helps follow FIFO, so final manufactured products aren’t sitting in the yard for longer than they need to before they are distributed to the customer.