This article will explain the four important points needed to thoroughly implement ‘First In, First Out’. Those points are 1) “To design a process where FIFO is achieved naturally”, 2) “To make it easy to know the ‘freshness’ of your inventory”, 3) “To minimize inventory quantity” and 4) “Thorough employee education”.
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‘First In, First Out’ and ‘Last In, First Out’
Hi, this is Mike Negami, Lean Sigma Black Belt.
This episode is a response to this video request:
“Can you please make one for FIFO in manufacturing and benefits of FIFO?” Thanks, Ali Ait, for your request.
FIFO is an abbreviation for ‘First In, First Out’.
For example, suppose that there are 10 of the same products from front to back on the shelf in the retail store. Customers normally take them from the front. If the clerks replenish the inventory from the front, the stock in the back will remain. Its quality will deteriorate and the total quality in the shop will not be stable. This is ‘Last In, First Out’ AKA LIFO.
On the other hand, ‘First In, First Out’ is to move the back stock to the front and put the replenishment stock in the back. That is to start using from the inventory you added earlier. This is a fundamental of inventory control in any industry where you handle physical products such as the manufacturing, wholesale and retail industries.
This concept is not rocket science, but you have to practice FIFO throughout all processes and it’s quite difficult to achieve that thoroughly. The reason is simple. ‘Last In, First Out’, is easy to do in operations, so if you don’t emphasize FIFO, workers tend to do LIFO. FIFO requires us to rotate all inventory all the time, which is more difficult.
The 4 Points Needed Thoroughly Implement ‘First In, First Out’
So how can we achieve this? I’ll explain the four important points. Just educating and training your employees isn’t enough.
1) “To design a process where FIFO is achieved naturally”
The first point is the manager’s responsibility, “To design a process where FIFO is achieved naturally.” The perfect example is a beverage refrigerator in a convenience store or grocery store.
This is a grocery store’s milk section. Customers take beverages out from the front and store employees stock inventory from the back. In addition, the previous inventory naturally is pushed to the front by replenishing. This helps achieve FIFO.
2) “To make it easy to know the ‘freshness’ of your inventory”
The second point is “To make it easy to know the ‘freshness’ of your inventory”. This is also a matter of the system you use because if you don’t know which item is old or new, you can’t achieve FIFO at all. If it’s SOP that employees have to read small stickers on the boxes and judge each item’s freshness, it’s the manager’s responsibility to resolve that.
The best method is to set up the location properly. The refrigerator mentioned earlier has a clear division between incoming and outgoing locations. This is ‘Management by Location’. Decide the incoming and outgoing locations and make clear divisions between them. Posting clear signs or putting tape on the floor is helpful for this. If you can make a tool to move inventories between locations smoothly, it’s even better. Tilted storage, rollers, dolly, etc. are often used for that.
‘Management by Location’ is ideal, but there are times when it cannot be done. At that time, please consider ‘Management by Color’. Human eyes find it easier to identify colors than texts.
In my company, our culinary teams use colored Food Rotation Labels to put on leftover ingredients and that distinguishes the freshness of ingredients.
3) “To minimize inventory quantity”
The 3rd point is “To minimize inventory quantity”. As mentioned earlier, FIFO is rotating all of your inventory all the time. If your inventory was unnecessarily increased, that would not only cause wasteful costs and labor, but it also blocks your visual management and causes LIFO.
Now, how much are the requisite minimum inventory amounts? Those depend on the frequency of order arrival, and lead time, which is the duration from the time you ordered to the time the order arrived.
The more frequently your inventory comes, the lower you can maintain those amounts. Everyday arrival is good, but it may increase labor and cost, so please consider the appropriate frequency. Lead time relies on your suppliers, but if you can shorten it, you can decrease your inventory. I’ll explain how to calculate your proper inventory amount and order quantity in the next post.
3) “Thorough employee education”
Lastly, the 4th point is “Thorough employee education”. Recently, some companies can do FIFO with system and robots only, but the majority of companies can’t do that. Even if we do all the possible measures we need, we still need to depend on our workers to do the necessary work correctly on the front-line.
Do all of your workers understand the importance of FIFO? Also, do they know what they need to do to achieve it? It’s not enough to just teach those things once. We have to systematize to train them continuously. For example, it’s effective to put visual SOP posters on the walls and to have managers inspect their teams on a regular basis.
Also, organizing the inventory locations is mandatory, otherwise FIFO would be never accomplished. This also requires thorough education.
FIFO seems very simple but in fact it’s not. Please check to see if it’s done or not. If not, please find the root cause and improve it by referring to today’s contents.