In WMS warehouse management systems, proper organization of warehouse processes is crucial for operational efficiency and precise inventory control.
One of the key elements of warehouse management is the method of issuing and tracking goods. This affects both warehouse management and accounting. LIFO, FIFO, and FEFO are popular inventory management strategies. They differ in the way products are issued from the warehouse. Manual batch designation allows for the selective selection of specific products from inventory. Each method has its own applications. Modern WMS systems automate and streamline these processes, optimizing storage and ensuring compliance with accounting records.
What is FIFO?
FIFO (First In, First Out) operates on a “first in, first out” basis, which can be compared to a queue: the item that has been in the warehouse the longest (first in) is also issued first. This method is often used in warehouses where priority is given to using up the oldest inventory. From an accounting perspective, FIFO means that inventory acquired first is valued first. During periods of inflation, FIFO reduces selling costs and increases accounting profits because older, cheaper inventory is recorded as an expense.
What is LIFO?
With LIFO (Last In, First Out), the warehouse releases the products received last. It’s similar to a stack of books – the top one is removed first. Warehouses often use this method where older batches are harder to access. In accounting, LIFO means that the most recently acquired inventory is valued first at cost of sales. During times of inflation, when prices rise, LIFO can increase cost of sales and reduce accounting profit.
What is FEFO?
FEFO (First Expired, First Out) is a method in which goods with the shortest expiration date are released first. This is particularly important in industries where product quality is time-sensitive, such as the food or pharmaceutical industries. While FEFO has no direct accounting application, it does have operational implications, impacting inventory accounting and reducing losses due to expired products.
How does manual batch selection work?
Manual batch selection allows for the selection of specific batches of goods regardless of their receipt, production order, or expiration date. This method is useful when a specific product from a given batch needs to be released. This is important, for example, for complaints or quality control. Manual batch selection allows for detailed tracking of costs associated with specific product batches. It is also crucial for cost analyses and audits, where data accuracy is crucial.
How do WMS systems support the management of expenditure methods?
WMS systems for managing inventory methods allow the assignment of the appropriate method (LIFO, FIFO, FEFO) to each commodity index. The WMS directs the warehouse worker to a specific location according to the selected strategy. Upon arrival, the warehouse worker confirms the collection of the appropriate batch from the correct location by clicking on the barcode, ensuring accuracy and compliance with system records.
WMS offers a prescriptive or advisory approach: in advisory mode, the system suggests a batch for release but allows the warehouse worker to select a different one, while in prescriptive mode, releases must be consistent with the system. Regardless of the method chosen, batch barcodes ensure traceability, and from an accounting perspective, the correct delivery or batch cost is correctly included in the release.
