What FIFO is and what FEFO is
FIFO (first in, first out) is the rule under which the stock that entered the warehouse first leaves first. Stock is ordered by receipt date. In Mexico, the same rule is known as PEPS (primeras entradas, primeras salidas).
FEFO (first expired, first out) is the rule under which the lot with the nearest expiration date leaves first, regardless of when it was received. Stock is ordered by expiration date.
In most cases, the two rules produce the same result, because what was received first usually expires first. The difference appears when a supplier delivers a lot with less shelf life than one received earlier, when returns of older lots arrive or when two suppliers deliver the same product with different production dates.
| Situation | FIFO allocates | FEFO allocates |
|---|---|---|
| Lot L2409 received Sep 2, expires Nov 30; lot L2410 received Sep 18, expires Dec 31 | L2409 | L2409 |
| Lot L2409 received Sep 2, expires Dec 31; lot L2412 received Sep 20, expires Nov 15 | L2409 | L2412 |
| Product without an expiration date, two receipts | The oldest | Not applicable; without an expiration date, FIFO is used |
When each rule applies
FEFO is the rule for any product with a use-by or consumption date: food, beverages, supplements, cosmetics, chemicals, adhesives and dated batteries. It reduces expiration losses because the lot closest to expiration always ships before a newer one.
FIFO is the rule for products without an expiration date but with a risk of obsolescence: spare parts, electronics, seasonal apparel, packaging material and products with version or label changes. It prevents goods from aging on the rack.
LIFO (last in, first out) exists as a physical rule where goods are stacked and cannot be taken any other way, as with some bulk products. In a warehouse with organized locations, it is rarely the desired rule.
FIFO and LIFO in accounting
In accounting, FIFO and LIFO also name inventory valuation methods: which cost is assigned to what is sold. That decision is independent of the physical outbound order. A warehouse can pick by FEFO while the company values inventory at average cost.
For tax purposes in Mexico, article 41 of the Income Tax Law (Ley del Impuesto sobre la Renta, published in Spanish) lists first in, first out (PEPS), specific identification, average cost and the retail method as inventory valuation methods. Your accountant defines the valuation method; your operations team defines the warehouse outbound rule.
What the warehouse needs for FEFO to work
Applying FEFO requires five conditions:
- The expiration date recorded at receiving. Without the date of each lot, the system cannot order the lots. Capture from GS1-128 labels prevents transcription errors.
- A minimum shelf life at receiving. Rejecting a lot that arrives with little shelf life, or requiring approval for it, prevents receiving products that will expire before they are sold.
- Allocation by the system. The system decides which lot ships for each order line, not the picker.
- Scan validation. The picker scans the lot; if it is not the allocated lot, the handheld stops the pick.
- Held stock kept out of allocation. Stock in quarantine, damaged or blocked must not be allocated to any order.
How to put away stock to support FEFO and FIFO
The allocation rule works best when put-away supports it:
- Do not mix lots in a pick face when possible; if lots are mixed, the lot closest to expiration must be at the front.
- Put the new lot behind the existing one in the pick face, or in reserve until the pick face is empty.
- Replenish the pick face from reserve by expiration date, not by proximity.
- Separate returns until they are inspected, so that an older lot does not return to the pick face without review.
Customer minimum shelf life
Some customers, particularly retail chains, require the product to arrive with a minimum remaining shelf life. FEFO alone can allocate a lot that meets the warehouse rule but not the customer requirement. In those cases, record the requirement by customer and check it at allocation or when the order is prepared, and track expiration losses as an indicator: the guide on warehouse KPIs includes inventory aging by expiration range.
Common errors when applying FEFO
- Expiration dates entered by hand with errors. A day and month entered in the wrong order (03/11 instead of 11/03) change the order of the lots. Reading the expiration date from the GS1-128 label prevents manual entry.
- Mixed lots in the pick face. If two lots share a location and the picker does not scan the lot, the system records one and the other ships. Scan validation of the lot closes that gap.
- Returns that go straight back to the rack. An older lot returned by a customer is restocked in front of the current lot and changes the order. It should be inspected and put away according to its expiration date.
- Unrecorded exceptions. When a supervisor approves picking another lot, for example because of a customer requirement, the exception must be recorded with its reason so that the stock ledger explains why the lot closest to expiration is still in stock.
- Measuring only total shrinkage. Without separating expiration losses from damage losses, the warehouse cannot evaluate whether FEFO works. Inventory aging by days to expiration shows the lots at risk before they expire.
How to move from FIFO to FEFO
If your warehouse picks by receipt date today and is moving to FEFO, the change works best in stages: first, record the expiration date of each lot at receiving for a few weeks; next, confirm that the lots in stock have their date; finally, change the allocation rule. Changing the rule before the dates are available produces incomplete allocations or an order that does not match reality.
How Chainlink WMS handles it
In Chainlink, each warehouse uses FEFO or FIFO as its allocation strategy. When an outbound document is released, the system allocates stock to each line: with FEFO, the lot that expires first; with FIFO, the stock received first. It does not consider stock in quarantine, blocked, damaged or in blocked locations; if there is not enough stock, the line shows an allocation shortage on the document's Allocation tab.
On the handheld, the picker sees the allocated lot and confirms it with a scan. With the strict FEFO rule of Professional and Enterprise, the app does not accept any other lot («Lot not allocated. Pick lot L2409 (earlier expiration).»); Essentials applies FEFO as a fixed setting. At receiving, the minimum shelf life stops a lot that expires before the accepted period, and at put-away Chainlink first suggests the location that already holds the same lot. See lot and expiration date tracking and guided picking.
Frequently asked questions
Are FEFO and FIFO the same?
No. They produce the same result when the stock received first also expires first, but when a newer lot expires before an older one, FIFO picks the older lot and FEFO picks the one that expires first.
Can FEFO be used for a product without an expiration date?
No. Without an expiration date, there is no criterion for ordering the lots. FIFO is used for that product.
Does the outbound rule change the inventory valuation?
No. Your accountant defines the accounting valuation (FIFO, average cost or another method); the outbound rule determines which lot physically leaves the warehouse.