Inventory allocation strategy determines which units get picked when fulfilling orders. For businesses handling products with expiration dates or lot numbers, choosing between FEFO (First Expired, First Out) and FIFO (First In, First Out) significantly impacts waste, compliance, and customer satisfaction.
This guide explains both strategies, when to use each, and how to configure them in your warehouse management system.
Understanding FIFO (First In, First Out)
FIFO allocates inventory based on when it was received. The oldest received stock ships first.
How it works: 1. Items are time-stamped when received 2. Pick tasks prioritize oldest receipt dates 3. Newer inventory sits until older stock depletes
Best for: - Non-perishable goods - Fashion and seasonal items (prevent aging) - Products without expiration dates - When all items have similar shelf life
Advantages: - Simple to understand and implement - Prevents dead stock from accumulating - No expiry date tracking required
Limitations: - Doesn't account for varying expiration dates within lots - May ship items with shorter remaining shelf life
Understanding FEFO (First Expired, First Out)
FEFO allocates based on expiration date, regardless of when items were received. Soonest-to-expire ships first.
How it works: 1. Expiry dates are captured at receipt (by lot) 2. Pick tasks prioritize earliest expiration 3. Recently received stock may ship before older stock if it expires sooner
Best for: - Food and beverage - Pharmaceuticals and nutraceuticals - Cosmetics and personal care - Any product with regulated shelf life
Advantages: - Minimizes waste from expired product - Ensures customers receive adequate shelf life - Required for FDA/cGMP compliance in many industries
Limitations: - Requires accurate expiry date capture at receipt - More complex to implement and audit - May create picking inefficiency if expiry dates vary widely
FEFO vs FIFO: Decision Matrix
Use this framework to choose:
| Factor | Use FIFO | Use FEFO |
|---|---|---|
| Products have expiry dates | No | Yes |
| Regulatory requirements (FDA, etc.) | Sometimes | Usually |
| Products are non-perishable | Yes | No |
| Seasonal rotation matters | Yes | No |
| Customer expects specific shelf life | No | Yes |
| Implementation complexity acceptable | Low | Higher |
Hybrid approach: Some warehouses use FEFO for perishables and FIFO for non-perishables. Modern WMS systems support item-level allocation strategy configuration.
Implementation in Your WMS
To implement effective FEFO/FIFO:
1. Configure item-level settings Tag each SKU with its preferred allocation strategy. Not everything needs FEFO.
2. Capture data at receipt FEFO requires expiry dates on every receipt line. Make this non-negotiable in your receiving process.
3. Set minimum shelf life rules Don't ship products with less than X days remaining. Configure quarantine alerts.
4. Train pickers on alerts When the WMS suggests a specific location, pickers should follow it-not grab the nearest unit.
5. Monitor compliance Track how often pickers override system suggestions. High override rates indicate training or system issues.
For more on maintaining inventory accuracy with these strategies, see our cycle counting best practices.
Common Pitfalls
Inconsistent expiry date formats Standardize on YYYY-MM-DD. Different date formats cause sorting errors.
Mixing strategies within a location If a bin contains FEFO and FIFO items, picking gets confusing. Segregate by strategy where possible.
Ignoring partial pallets When a pallet is partially depleted, it may have an older expiry than a fresh full pallet. Include all inventory in FEFO calculations.
Not handling expired inventory Items past expiry should quarantine automatically, not appear in pickable inventory. Configure your WMS appropriately.
Measuring Success
Track these KPIs to ensure your allocation strategy is working:
- Waste rate - Units scrapped due to expiry - Average shelf life at shipment - Are customers getting adequate shelf life? - Pick path efficiency - Is FEFO creating excessive travel? - Allocation override rate - How often do pickers ignore system recommendations? - Inventory turns - Is slow-moving stock being identified and rotated?
Quarterly reviews of these metrics help identify process drift before it becomes problematic.