FEFO vs FIFO: Which Inventory Rotation Should You Use?

Deciding how to rotate inventory is a fundamental operation for any warehouse. Two common approaches are FEFO (First-Expire, First-Out) and FIFO (First-In, First-Out). Although they sound similar, their priorities differ and choosing the right method affects waste, compliance, and customer satisfaction. This article looks at the differences, real-world scenarios, and practical guidance for selecting and combining these methods.

Core definitions

• FEFO (First-Expire, First-Out): Stock is selected according to the earliest expiration date. FEFO is the logical choice for items where the expiry or ‘use by’ date is critical.
• FIFO (First-In, First-Out): Stock is moved in the same sequence it arrived. FIFO prevents long-term stock aging when arrival order and expiry largely align or when items are non-perishable.

Key differences

1. Priority: FEFO prioritizes expiry date; FIFO prioritizes arrival date.
2. Use cases: FEFO is essential for perishables and regulated products (food, pharmaceuticals). FIFO often suffices for dry goods, hardware, or any product without a meaningful expiry.
3. Complexity: FEFO requires accurate expiry tracking, often by lot or batch, and WMS logic to sort picks by date. FIFO is operationally simpler; physical flow racks or natural shelving can often enforce it.
4. Risk profile: FEFO minimizes expired shipments; FIFO minimizes long-term stock obsolescence but can fail if a late arrival has an earlier expiry than earlier stock.

Real-world examples

• Grocery retail: Fresh produce, dairy, and baked goods typically use FEFO to avoid selling out-of-date food. A late shipment of yogurt with a short remaining shelf life must be moved before earlier arrivals.
• Pharmaceuticals: Most drug distributors use FEFO to meet regulatory requirements and patient safety standards. Shipments are chosen by nearest expiry, supported by lot tracking.
• Industrial spare parts: Hardware and nonperishable components often use FIFO or even ABC-based picking where high-turn items are prioritized, since expiry is not an issue.

When FIFO is good enough

FIFO can be effective when expiry dates are either nonexistent or are practically all the same across deliveries. If suppliers deliver product with long and similar shelf lives, arrival order typically mirrors expiry order and FIFO delivers the same outcome as FEFO with lower complexity.

When you must choose FEFO

• If regulations mandate minimum remaining shelf life on delivery.
• If product safety depends on avoiding expired items (food, medicines, biologics).
• If your supply chain frequently receives short-dated batches that would be missed under FIFO.

Hybrid approaches and practical compromises

Many operations use a hybrid strategy: adopt FEFO for SKUs with meaningful expiry and FIFO for all others. Your WMS can maintain a flag on each SKU indicating whether FEFO rules should apply. For mixed pallets or promotional stock with compressed sell-by windows, create special handling rules that temporarily force FEFO behavior.

Technology and process implications

• WMS capabilities: A modern WMS should support both FEFO and FIFO and allow per-SKU rotation rules. It should also accept expiry dates at receipt and enforce pick logic accordingly.
• Labeling and traceability: FEFO requires consistent date and lot labeling. Barcodes encoding expiry and lot can be scanned on receipt and at picking to prevent mistakes.
• Storage design: For FEFO, arrange pick faces by expiry window; for FIFO, layout storage to enable natural flow from oldest to newest stock.
• Training and audits: Workers must understand which rule applies to each SKU; regular cycle counts and audits confirm compliance and catch exceptions early.

Measuring success

Key performance indicators help decide whether you chose the right rotation method:

• Expired stock percentage: The share of inventory that expires before sale — FEFO should minimize this for perishables.
• Inventory turnover: How quickly stock moves — over-rotation or poor rotation can depress turnover.
• Customer returns due to shelf life: Issues here indicate rotation or handling problems.
• Write-offs and markdown frequency: High write-offs suggest misaligned rotation rules or supplier quality issues.

Conclusion

FEFO and FIFO are not antagonists but tools. Choose FEFO when expiry matters, FIFO when arrival order is a reliable proxy for product freshness. For many businesses, the right answer is both: mark perishables for FEFO and nonperishables for FIFO, supported by a WMS that enforces those rules. This balanced approach reduces waste, ensures compliance, and keeps operations efficient and simple where possible.