Inventory is an essential part of any business, and there are various ways to manage it. Some industries might benefit by using FIFO while others might be better off with LIFO. Any business would be well advised to understand the difference between FIFO and LIFO inventory management and determine which method works best for them.
The first kind of inventory method is known as FIFO, which means first in, first out. This method’s primary benefits are that it’s incredibly easy to implement and allows for fewer errors. While many businesses might try to get rid of older products first, FIFO reduces the number of mistakes that could occur during bookkeeping.
Another option that businesses can utilize for inventory management is LIFO, which means last in, first out. This is a common tactic that you may already know about. LIFO requires the use or sale of older inventory first before moving to the newer products. You’ll find this type of inventory management style in the food industry because older products need to be used or sold first.
There are some main takeaways from both LIFO and FIFO that you should keep in mind when choosing the best method for your business. With FIFO, you get an increased cost of goods, reduced profits, and lower tax liability. On the flip side, LIFO offers the complete opposite, featuring a lower cost of goods, increased profits, and higher tax liability. Based on these main takeaways, you can decide what is best for your company.
After discovering the difference between FIFO and LIFO inventory management, you can then move forward with the right method. Regardless of the inventory management style you choose, color coding stickers from Chromalabel can put your business on the right track by being able to easily identify old and new inventory to make business operations more efficient.
Update from April 2021
Everyone's inventory process is a little different! Luckily, Chromlabel offers many different products so you will be able to get the products you need for your individual process. Let us know about your inventory management process, what works for you, and what products have helped you! Or, if you aren't sure which product is best for you, give us a call at (800) 256-0435, and we will be happy to help you!