LIFO

Abbreviation for Last In First Out

What does LIFO refer to?

The LIFO (Last In, First Out) stock management method consists in managing non-perishable goods, or ones with no expiry date, by delivering the last items that entered the platform first. The LIFO method implies placing the most recent items so they are delivered before the older ones. The latter will then wait to gain in value before being delivered.

The LIFO is mainly used to value a company’s stock, with a view to increasing financial results. This is namely the case when the oldest product generates value over time. Alcohol requiring ageing in a cellar are a good example of LIFO-managed products.

Advantages to the LIFO method:

• It means obtaining the highest production price, as it is the most up-to-date;
• The oldest stock will only leave the racks once there are no more units to sell before;
• It is suited to products with no use-by dates, such as construction site products or other dry products from the agri-food industry;
• It saves space, as only one storage rack is used.

 

Storage solutions using the LIFO method

• It reduces the distances covered by machine operators or forklift users, as well as AR SHUTTLE routes - as the loading and unloading processes happen in the same place;
• The oldest goods stay where they are. The best is for item location to be done via shuttle, as a shuttle only contains one reference;
• LIFO management allows for channel storage, which saves a lot of space both in terms of floor area and height.

Racks are most often adapted to goods managed in large quantities, of similar size and presenting low turnover. The advantages are as follows:

• Aisles are removed, as the racks are all places next to one another;
• This kind of storage makes input and output easier to control;
• The warehouse is designed to receive one reference (whose number is known) per loading aisle;
• Two loading solutions can be used: either a drive-in option presenting just one access, and the drive-through option presenting two loading access areas (on each side of the rack).

Examples and practical applications

A logical method for less experienced operators

• As LIFO management consists in taking the first package from the rack, employees tend to work with this picking system as it is easiest;
• The latest items to have come in are the most accessible;
• The best is to set up a push-back pallet shelving system. The racks receive the last pallet, and pushes any pallets previously placed on the shelf to the back. This is a depth-based goods channelling method;
• Products which arrived a long time ago remain on the racks;
• If the products sold by the company do not show a use-by or sell-by date - or even better, if they gain in value with age - this is the perfect solution to be adopted.

 

Regulatory cornerstones

• Transport contract, if there is one
• Sales contract
• Otherwise, the Internal transport orientation law, no. 82 - 1153 dated 31 December 1982 that made a written agreement mandatory
• International accounting standards, known as IFRS, for listed companies

Legal and tax rules applicable to the field of activity at hand, consistent with analytical accounting for stock valuation