What does the acronym FIFO stand for in inventory management?

In inventory management, the acronym FIFO stands for "First In, First Out." This method is crucial for managing perishable goods or items with expiration dates, as it ensures that the oldest inventory is sold first. By following the FIFO principle, businesses can minimize the risk of inventory obsolescence or spoilage, which can lead to financial losses.

The FIFO method also contributes to more accurate financial statements, as it reflects the cost of goods sold using the older inventory's costs, which may be lower than newer inventory. This is particularly important in times of rising prices, as it can positively influence profit margins.

Understanding FIFO is essential for effective supply chain management because it impacts procurement, inventory turnover, and overall operational efficiency. It forms part of the broader inventory valuation methods, which include other techniques that prioritize inventory management but differ in their approach.