Inventory is an important part of any business. It has the capability to influence the revenue of the business directly. There are many inventory methods to manage and control the inventory operations. Depending on the inventory the accurate method is applied. Plus, all these methods are required for precise financial reporting.
In this blog, let us discuss the FEFO method in detail »
What is FEFO Method?
FEFO can be expanded as First Expire, first-out inventory. FEFO is an inventory management technique in which the product that has the earliest expiration date is allocated for a new customer order.
FEFO method is used specifically for perishable goods, such as food, pharmaceuticals, and pharmacy. The FEFO method ensures that the oldest items are sold or used first, which minimizes the usage risk of outdated products and reduces waste.
Also Read : What is the FIFO method in Inventory? Definition and how to use it?
Why is FEFO Method used?
FEFO(First Expired First Out) is a crucial process for the warehouse function in the food and drug industry that prioritizes selling perishable products with the closest expiration first. In this blog post, we will explore the importance of the FEFO system in the food & drug industry, how it differs from the FIFO system, and how can FEFO method of stock movement can be achieved in SAGE X3 system
The FIFO method is very similar to the above method, but instead of using the expiry date as a basis for the priority issue of products, the criteria is the date of entry of the product in the warehouse. Thus, if products have the same expiry date, the first one to be issued would be the first one that entered.
Use of the FEFO method is often unrealistic manually, so digital tools have helped to maintain control over the entire supply chain to facilitate all logistics operations. Irrespective of the management method chosen, it is necessary and recommendable to have software such as SAGE software among others, to control inflows and outflows, locations, batches, expiry dates… for the fully effective management of any technique chosen.
For FEFO method to work the stock must be maintained lot wise so that record of expiry date of each lot is available in system that will help in tracking of such products easily. It is best to use the FEFO method if you sell perishable goods, food and beverage industry, or a pharmacy where offering a product past its expiry date can have serious consequences.
Example of FEFO
We have learned that FEFO is a method used to move the inventory in such a way that the earliest expiring products are sold first. Let us learn deeply about the First Expire, first out FEFO with an example.
- Let us take an example of a Pharma company that uses the FEFO inventory keeping.
- Assume that in January, a lot X of product A with quantity 10000 is manufactured with MFG date 01st January 2023 and Shelf life of 24 months i.e. the stock expiry date will be 31st December 2025.
- Further, in February, a lot Y of same product is manufactured with quantity 10000 with mfg date 01st Feb 2023 and expiry date as 31st January 2026.
- Hence, when the delivery of this product in March 2023 for quantity 11000 is to be done This method ensures that the lot X is selected first and afterwards the lot Y will be selected for delivery ensuring that first perishable lot is selected automatically.
Steps to apply FEFO method in SAGE X3
Step 1: – FEFO method can be easily achieved through Stock Setup in SAGE X3, you just need to change the allocation and issue rules in setup, to FEFO
Step 2: In Product master select the stock management as “Managed”, Lot management as “Mandatory lot” and in Expiration control management, select “Mandatory Entry”
Step 3 :During purchase receipt entry, select the product and enter its lot with expiry date and MFG date, and during delivery, system will auto select the first expiring lot automatically
Hope this Blog helps in achieving FEFO stock keeping.
