FIFO method (First In, First Out) is a principle used to manage the flow of materials, products, or information, in which the first items to enter a system are also the first to leave it. In other words, the oldest inventory or data exists before newer items. This rule is widely applied in logistics and inventory management, as well as in IT (e.g., data queues and scheduling algorithms) and electronics (e.g., FIFO buffers). It is one of the most commonly used flow control methods.
The concept of a FIFO queue refers to a data structure where newly added elements are placed at the end, and retrieval always occurs from the front (the head of the queue). In accounting, FIFO is also known as the method of earliest cost or the queue method, where the cost of the earliest goods purchased is used to value outgoing inventory.
Definition of FIFO Principle
According to the FIFO method, the first element (product, data, or process) introduced into a system is also the first one to be removed. For example, in a warehouse, goods received first should also be shipped out first. This ensures that older inventory is sold or used before newer items, which is particularly important in industries dealing with perishable goods (e.g., food, pharmaceuticals). FIFO helps reduce losses caused by expiration.
Terminology and Variants
FIFO is also referred to as the queue method or earliest cost method. In IT, the term FCFS (First Come, First Served) is often used interchangeably, describing algorithms that allocate resources in the order they arrive. A humorous term used in some circles is FISH (First In, Still Here), referring to old, stagnant inventory that has not been moved for a long time.
Contrasting FIFO is LIFO (Last In, First Out), where the newest items are used or sold first. Other lesser-known variants include FILO (First In, Last Out, essentially LIFO), FEFO (First Expired, First Out – based on expiration date), LOFO (Lowest In, First Out – based on lowest cost), and HIFO (Highest In, First Out – based on highest cost).
Applications of FIFO Method
FIFO Method in Logistics and Inventory Management
FIFO is a foundational rule in inventory rotation. In a warehouse, it means that items received first are issued or shipped first. To apply this principle effectively, physical storage must be designed to support forward movement of older stock. FIFO is critical when dealing with products that have a limited shelf life such as food, medicine, or cosmetics. It helps prevent situations where new deliveries overshadow older stock, leading to spoilage or expiration.
Practical FIFO systems may include:
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Flow racks (with rollers or conveyors)
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One-way access aisles to enforce picking order
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Date or batch code labeling systems
These help ensure that warehouse operations prioritize the oldest stock. Implementing FIFO optimizes inventory valuation, reduces waste, and prevents financial losses due to quality degradation.
FIFO Method in Computer Science and Scheduling
In computer science, FIFO queues are abstract data structures where new elements are appended to the end and removed from the beginning. This is used in:
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Job scheduling
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Input/output request management
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Task buffering
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CPU time allocation (via FCFS scheduling)
Many networking and communication devices such as routers and switches use FIFO logic to manage data packets in the order they were received. While LIFO (stack-based processing) is also common in certain scenarios, FIFO remains the preferred model for linear and fair task processing.
FIFO in Electronics and Embedded Systems
In electronics, FIFO refers to a buffer or memory structure where data is read in the same order it was written. It is used in:
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Clock domain crossing between components
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Serial communication interfaces
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Inter-process communication (e.g., pipes or queues)
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Disk I/O scheduling
These FIFO buffers ensure ordered data flow and avoid timing conflicts across different system modules.
Comparison: FIFO vs Other Methods
- LIFO (Last In, First Out) – Opposite of FIFO. Newest stock is used first. Common with bulk or non-perishable items. May reduce net income during inflation (higher COGS), but can increase tax efficiency.
- FEFO (First Expired, First Out) – Prioritizes expiration date over entry date. Essential in food, health, and chemical industries. Reduces waste and supports sustainable inventory practices.
- LOFO (Lowest In, First Out) – Items with the lowest cost are used first. Can result in inflated asset valuation due to remaining high-value inventory.
- HIFO (Highest In, First Out) – Highest-cost items are used first. Useful in finance or stock accounting to reduce capital gains by selling expensive items first.
- AVCO (Average Cost) – Uses weighted average cost for outgoing inventory. Smooths out cost fluctuations but requires more complex calculations.
Other terms include:
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FILO (First In, Last Out) – rarely used, functionally equivalent to LIFO.
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FISH (First In, Still Here) – joke term for stagnant stock.
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FCFS – Equivalent to FIFO, especially in operating systems and task management.
FIFO in Lean Manufacturing and VSM (Value Stream Mapping)
In Lean methodologies, FIFO lanes are designated buffer zones between production stages. Their purpose is to:
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Regulate flow
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Prevent overproduction
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Balance production lines
In Value Stream Mapping (VSM), FIFO lanes are visualized as controlled buffers with a fixed capacity (e.g., 10 items). They improve delivery reliability, reduce work-in-progress inventory, and increase responsiveness to issues. FIFO is a part of the 5S System.
Practical FIFO Implementations in Manufacturing:
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Buffered Conveyor – A sloped or motorized conveyor that moves products in a single direction. Items are inserted at the beginning and picked at the end.
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One-Way Flow Paths – Floor markings or guided tracks force operators to take the oldest item first.
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FIFO Cones or Markers – Placed at the first-in items, removed only when that item is picked.
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Date Tags or Visual Cards – Manual labeling of items with arrival dates to ensure correct selection sequence.
These systems help maintain orderly flow, detect disruptions faster, and allow smoother planning and production leveling (heijunka in Lean terms).
Pros and Cons of FIFO Method
Advantages:
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Ensures product quality and freshness
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Reflects current market pricing in accounting
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Prevents expiration-related waste
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Simplifies cost tracking and valuation
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Easy to implement with proper labeling and storage design
Disadvantages:
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Can inflate taxable income during inflationary periods
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Requires disciplined inventory handling and systems
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May not work efficiently in low turnover environments
Summary – FIFO Method
FIFO is a universal principle for managing flow — in warehouses, digital systems, and production lines. Its main benefit is order and predictability, helping reduce waste, maintain quality, and reflect accurate cost values. However, no single inventory method is ideal for all industries.
In practice, many organizations use a hybrid model: FIFO for perishables, LIFO for durable goods, and FEFO for highly regulated items. FIFO also plays a critical role in Lean thinking, especially in Value Stream Mapping, by helping teams identify bottlenecks, level workflows, and eliminate inefficiencies.
Whether in logistics or software, FIFO supports structure, reliability, and efficiency — making it one of the most enduring methods in operations and supply chain management.
I am a promoter of Lean Management and the Training Within Industry program. I am a practitioner. I co-create many startups. Since 2015, I have been the CEO of Leantrix - a leading Lean consulting company in Poland, which, starting from 2024, organizes one of the largest conferences dedicated to lean management in Poland - the Lean TWI Summit. Since 2019, I have been the CEO of Do Lean IT OU, a company registered in Estonia that creates the software etwi.io, used by dozens of manufacturing and service companies in Europe and the USA.
