FIFO (First In First Out)

FIFO (First In, First Out) is most commonly known as an accounting term. It simply means that the first inventory into the accounting system is the first that is recorded as used. The opposite, LIFO, or “Last In, First Out” means that the most recently purchased materials are the first ones recorded as consumed.

FIFO and LIFO accounting each has its own advantages and disadvantages, primarily attributed to inflation. For example, when prices rise, LIFO more accurately captures true cost of the goods, while leaving older, less expensive material on the books.

In Lean, though, FIFO refers to the physical use of the products. FIFO means that the first piece of material or component to arrive in a factory is the first one to leave the factory. This prevents aging of materials that can devalue them, such as when paint fades, plastic deteriorates, or batteries lose their charge.

FIFO also refers to the order of work. Instead of batching production, the first order received is the first one worked on.