What does the term "first-in, first-out" (FIFO) refer to?

The term "first-in, first-out" (FIFO) is primarily associated with inventory management and refers specifically to an approach where the oldest inventory items are sold or utilized first. This method ensures that inventory rotation is based on the sequence in which it was received. By selling older stock first, businesses minimize the risk of obsolescence and spoilage, especially important for perishable goods.

Implementing FIFO can lead to better cash flow and inventory turnover, as it allows businesses to maintain a fresh stock that meets customer demand without being burdened by outdated or unsellable products. This practice is commonly used in various industries, including food and pharmaceuticals, where the freshness of products is critical.

This choice highlights the importance of efficient inventory management, aligning with the principles of minimizing waste and maximizing product quality and customer satisfaction. It serves to provide a practical framework for managing inventory effectively, ensuring that businesses can respond to customer needs promptly while maintaining operational efficiency.