FIFO vs FEFO vs LIFO Inventory: Which Method Fits Your Warehouse?

FIFO means “first in, first out”, FEFO means “first expired, first out” and LIFO means “last in, first out”. For goods with an expiry date, such as food, medicines and chemicals, FEFO is usually the better choice; FIFO suits most general goods; and LIFO only makes physical sense in special cases such as bulk, stacked materials.

When someone searches for “FIFO inventory system” or “what is FEFO”, they usually have one of two questions in mind: “In what order should I take stock out of the warehouse?” or “How should I calculate the cost of goods sold?” The two sound similar but they are not the same. The first is about the physical flow of goods; the second is about the accounting valuation method. In this article we define all three methods precisely, explain them with hypothetical examples, clarify the difference between physical flow and accounting, and finish by showing how warehouse management software makes it easier to apply these methods correctly.

What is FIFO (first in, first out)?

With FIFO (First In, First Out), the goods that arrived first leave first. The logic is simple: older stock should not sit at the back of the warehouse and age. It is the natural choice for most general goods that have no fixed expiry date but can go out of fashion, fade or suffer packaging damage over time.

Hypothetical example: a warehouse of hygiene products receives 100 cartons of an item in month one and 80 cartons in month two. Under FIFO, when an order for 120 cartons arrives, the 100 cartons from month one go out first, followed by 20 cartons from the month-two delivery.

What is FEFO (first expired, first out)?

With FEFO (First Expired, First Out), the deciding factor is not the arrival date but the expiry date. Whatever expires soonest leaves first, even if it arrived later. In practice this distinction matters a great deal, because the delivery that arrives first does not always have the nearest expiry date.

Hypothetical example: a food factory holds two batches of the same raw material. Batch A arrived earlier but is good for another six months; batch B arrived later but expires in two months. Under FIFO you would use batch A first and batch B might expire on the shelf. Under FEFO, batch B is used first and waste goes down.

FEFO only works when the expiry date is recorded for every batch. That is why it is almost impossible to run in warehouses that keep this information on paper or in the storekeeper’s head.

What is LIFO (last in, first out)?

With LIFO (Last In, First Out), the last goods received are the first to leave. Physically, this happens where goods are stacked on top of each other and it is easiest to take from the top, as with sand, bricks or certain bulk materials where spoilage and ageing are not a concern.

Hypothetical example: in a building materials yard, new bags are stacked on top of older ones and workers load from the top of the pile. The physical flow in that yard is effectively LIFO.

For goods with an expiry date, LIFO is risky: older stock stays in the lower layers and can expire or spoil.

FIFO vs FEFO vs LIFO comparison table

Physical stock rotation vs inventory valuation: not the same decision

This is the most important point, and many articles skip it. “Which item you take off the shelf” and “how you calculate the cost of goods sold in your books” are two separate decisions. Your warehouse can physically run FEFO while your accounts calculate cost with a different method.

The inventory valuation method is governed by accounting standards. For example, International Financial Reporting Standards (IFRS) do not permit LIFO for inventory valuation, and methods such as FIFO and weighted average are more common; some national frameworks, such as US GAAP, still allow LIFO. Which method is required or permitted for your company depends on the accounting standards that apply to you, tax rules and your specific circumstances, so always consult your accountant or auditor before deciding on a valuation method. This article is about the physical order in which stock leaves the warehouse and is not a substitute for accounting advice.

Which stock rotation method is right for your warehouse?

To decide, ask yourself these questions in order:

1. Do your goods have an expiry date? If yes, FEFO is almost always the right choice for physical issuing.
2. Do they age or lose value over time? If yes but they have no expiry date, FIFO fits.
3. Are they bulk, stacked and non-perishable? Then the physical flow may effectively be LIFO without causing problems.
4. Do customers or regulations require batch traceability? If yes, recording batches is essential regardless of the issuing method.

In practice many factories mix methods: FEFO for dated raw materials and FIFO for parts and consumables.

Running FEFO in warehouse software: what you need

Manual FEFO is possible in small warehouses with careful labelling, but as the number of items and batches grows, human error becomes unavoidable. A warehouse management system that does this well should offer:

• Recording the batch and expiry date when goods are received
• A warning or prompt at issue time so the batch closest to expiry goes out first
• Reports of expired and soon-to-expire stock
• Quarantine for suspect stock until a decision is made
• Fast search by batch number

Batch handling depends heavily on accurate scanning at the shelf; our guide to managing a warehouse from your phone shows how barcode and QR scanning with a phone camera fits into daily work.

Avadar Industry and its “first expired, first out” warning

Avadar, P-Soft’s warehouse and inventory software, comes in three editions: Industry, Cargo and Trade. The Avadar Industry edition, designed for factories and production warehouses, records the batch and expiry date of goods and gives a “first expired, first out” warning. In other words, when stock is being issued, the operator is alerted that a batch with a nearer expiry date exists. Quality quarantine and release of goods are also built in. Because receiving and issuing are done by scanning barcodes and QR codes, the chance of picking the wrong batch goes down.

Note that Avadar is a tool for managing the physical flow and traceability of goods; the accounting valuation method for inventory should be decided with your accountant and applied in your accounting software. For a wider view of how to choose a system, see how to choose the best warehouse management software.

Common FIFO and FEFO mistakes

• Treating FIFO and FEFO as the same: for dated goods, arrival order does not guarantee expiry order.
• Not recording batches at receipt: if the batch is not captured when goods arrive, no software can run FEFO later.
• Poor shelf layout: if new stock is placed in front of old stock, operators struggle to pick the right batch even with a software warning.
• Ignoring the reports: a near-expiry report only helps if someone reviews it regularly.

Frequently Asked Questions

What is the difference between FIFO and FEFO?

FIFO issues stock by arrival date and FEFO by expiry date; for dated goods, FEFO is more accurate.

Is LIFO allowed for inventory accounting?

It is not permitted under IFRS, though some national standards allow it. Decide your company’s valuation method with your accountant.

Which method is best for a pharmacy or food warehouse?

Usually FEFO, because stock close to expiry leaves first and waste goes down.

Does Avadar have an expiry date warning?

Yes. Avadar Industry records batch and expiry date with a “first expired, first out” warning, available in the Pro and Elite plans.

Can I use different methods for different products?

Yes. Many warehouses run FEFO for dated goods and FIFO for everything else.

If you want to see FEFO and batch tracking working with your own warehouse data, request an Avadar demo and P-Soft’s team will arrange it.

Further reading

• What Is Warehouse Management Software & Why Every Business Needs It
• The Best Warehouse Management Software for Your Business: A Guide to Choosing and Comparing (2026)
• What Is Stocktaking? A Complete Practical Guide

Complete guide: warehouse management software