What is FIFO, FEFO, and LIFO in Inventory Management?
By Vidya Kathare
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FIFO, FEFO and LIFO are the three ways a warehouse decides which units to pick first. FIFO (First In, First Out) ships the oldest-received stock first. FEFO (First Expired, First Out) ships the nearest-expiry stock first, regardless of when it arrived. LIFO (Last In, First Out) ships the most recently received stock first. For Indian businesses the practical rule is simple: pick on FIFO for general goods, FEFO for anything with an expiry date, and avoid LIFO — it is not permitted for inventory valuation under Indian accounting standards.
- FIFO (First In, First Out)
- Oldest-received stock is picked and costed first — the default for most inventory.
- FEFO (First Expired, First Out)
- Nearest-expiry stock is picked first — essential for pharma, food and other dated goods.
- LIFO (Last In, First Out)
- Most recently received stock is picked first — not permitted for valuation in India.
- Picklist
- The system-generated list telling a picker which lot and location to pick, in the chosen sequence.
- AS 2 / Ind AS 2
- The Indian accounting standard on Valuation of Inventories, which allows FIFO and weighted average but disallows LIFO.
FIFO vs FEFO vs LIFO: side-by-side comparison
This table is the quickest way to choose a method for a given item or category:
| Method | Full name | Best for | Valuation impact | Expiry risk | IMS support |
|---|---|---|---|---|---|
| FIFO | First In, First Out | General manufacturing, trading and retail stock | Higher reported profit when prices rise (older, cheaper cost expensed) | Low — oldest stock always moves first | ✅ |
| FEFO | First Expired, First Out | Pharma, food, chemicals, cosmetics — anything dated | Driven by expiry, not receipt order; protects against write-offs | Lowest — nearest-expiry batch leaves first | ✅ |
| LIFO | Last In, First Out | Rarely used; some non-perishable bulk piles | Lower reported profit when prices rise | High — old stock can sit and expire | ⚠ (not used in India) |
FIFO vs FEFO: the expiry difference that catches people out
FIFO and FEFO agree most of the time — but not always. Imagine a pharma distributor receives Batch A in January (expiry December) and Batch B in March (expiry June). FIFO would ship Batch A first because it arrived first. FEFO would ship Batch B first because it expires sooner. If you run FIFO here, Batch B quietly expires on the shelf. That is why expiry-sensitive sectors must pick on FEFO, not just FIFO. See our deeper guide on batch & expiry tracking for pharma and food.
Choosing the right method for your warehouse
Most businesses do not pick one method for everything — they set it per item or category. Dated goods (medicines, dairy, packaged food, paints, cosmetics) run on FEFO. Everything else runs on FIFO, which also keeps your valuation compliant. The decision should live in the software, not in a storekeeper’s head, so that the correct lot is suggested automatically every time. For the wider context, read what inventory management software is and what a GRN is (where lot and expiry data is first captured).
How Fast Inventory enforces picking strategy
Fast Inventory (by Fast Technology) captures the data that makes correct picking possible, then sequences the picklist for you:
- FIFO / FEFO / LIFO picklist generation — the system can generate picklists in any of the three sequences, so you choose the right one per item or category.
- Batch-wise picklist generation — pick by specific lot/batch when traceability or recall control is needed.
- Lot number generation at goods receipt — every receipt is tied to a lot number and location, with a printable GRN tag carrying grade, supplier and heat code.
- Lot Expiry Dashboard — nearest-expiry stock is surfaced by time bucket (today, week, month, quarter, year) so FEFO picking is driven by real expiry data.
- Barcoded, mobile picking — scan picklist barcode → scan packet barcode → confirm, so the suggested lot is the lot that physically leaves the warehouse.
Because the sequence is enforced by the software and confirmed by barcode scan, the right batch goes out every time — without relying on the picker to remember dates. (Capabilities per the Fast Technology product knowledge base, Order Picking and Inventory Management modules.)
Frequently asked questions
Which inventory valuation method is allowed in India?
Indian accounting standards (AS 2 and Ind AS 2, Valuation of Inventories) permit FIFO and Weighted Average cost. LIFO is not permitted for inventory valuation in India. Most Indian manufacturers and traders therefore value stock on FIFO, and pick physically on FIFO or FEFO.
What is the difference between FIFO and FEFO?
FIFO (First In, First Out) moves the oldest-received stock first, based on the date it arrived. FEFO (First Expired, First Out) moves the nearest-expiry stock first, based on the expiry date - which may not be the oldest receipt. For perishable or dated goods, FEFO is safer because a newer batch can expire sooner than an older one.
When should a pharma company use FEFO?
A pharma, food, chemical or cosmetics company should use FEFO whenever items carry an expiry or use-by date. Picking by expiry rather than receipt date minimises write-offs, prevents shipping near-expiry stock, and supports batch recall and regulatory traceability.
How does inventory software automate FIFO picking?
The system records the receipt date, lot number and (for FEFO) expiry date at goods receipt, then generates picklists in the correct sequence automatically - oldest-received first for FIFO, nearest-expiry first for FEFO. The picker simply scans the suggested lot, so the right batch leaves the warehouse without manual checking.
Does FIFO or LIFO give higher profit?
In a period of rising prices, FIFO reports higher profit because older, cheaper costs flow to cost of goods sold, leaving newer, higher costs in stock. LIFO reports lower profit in the same conditions. Because LIFO is barred in India, this is largely academic for Indian businesses, which use FIFO or weighted average.