FIFO vs FEFO: how a warehouse rotates your stock (and your expiry dates)

Warehouse FIFO vs accounting FIFO: two different topics

Search for “FIFO” and you will find as many accounting lessons as warehouse guides. In accounting, FIFO is an inventory costing method: it determines the value of inventory on the balance sheet and the cost of goods sold. In a warehouse, FIFO refers to the physical order in which products leave the shelves.

The two decisions are independent. Your accountant picks the costing method that suits your financial statements. Your 3PL applies a physical rotation rule that protects your products.

FIFO, FEFO, LIFO: three ways to rotate stock

FIFO: first in, first out

The warehouse management system sends the picker to the stock that was received earliest. It is the default rule in many warehouses, and it is simple to apply: all you need is the receiving date of each pallet. It suits products with no date, or with a shelf life long enough never to be an issue: accessories, apparel, sporting goods, packaging.

FEFO: first expired, first out

Here, what counts is not the arrival date but the date printed on the product. The picker is sent to the lot with the closest best-before or expiry date. For this to work, every lot must be recorded with its date at receiving, then stored so the system can tell it apart from other lots of the same SKU.

LIFO: last in, first out

The newest stock ships first. In warehouses, you mostly see it with non-perishable goods stored in bulk or stacked, when it is easier to take what is in front or on top. For dated products, it is the surest way to let the first lots age at the back of the row: avoid it.

Why FIFO falls short when your products have a date

FIFO rests on one assumption: the stock received first is also the stock that expires first. Take an example. On March 3, the warehouse receives lot A of your granola bars, best before September 15. On March 10, lot B arrives, produced earlier by another manufacturer, best before July 30. With FIFO, lot A ships first and lot B ages on the shelf. With FEFO, lot B ships first and both lots sell before their date.

This happens more often than you might think:

• Several manufacturers or production lines. Dates don’t follow the order in which goods reach the warehouse.
• An inventory transfer. When you switch 3PLs or bring stock back from another warehouse, old lots arrive after newer ones.
• Returns put back in stock. A product returned in good condition often has a shorter date than the stock already on the shelf.
• Gift boxes and kits. For rotation purposes, a gift box carries the date of its shortest-dated component, whenever it was assembled.

Expiry dates and lot numbers: what the regulations say

Dates on the label

According to the Canadian Food Inspection Agency (CFIA), a best-before date is mandatory on prepackaged foods with a durable life of 90 days or less. Beyond that, it is optional, but it must follow the prescribed format when used. This date is about freshness and quality, not safety. Some foods, such as infant formula, meal replacements and nutritional supplements, carry an expiration date instead and should not be sold once that date has passed.

Even when a best-before date is optional, your buyers look at it: a grocer can refuse a product too close to its date, and an online customer notices it when opening the parcel. Date rotation protects your sales and your reputation first.

Lot numbers and traceability

The Safe Food for Canadians Regulations require the businesses they cover to trace food one step back (who supplied it, and when) and one step forward (who it was provided to, and when), with its lot code or another unique identifier. According to the CFIA, these records must remain accessible for two years and be provided within 24 hours of a CFIA request. The lot code must also appear on the label of consumer prepackaged foods.

When your stock is at a 3PL, the 3PL knows which lot went into which order. Check what applies to your business, and make sure your 3PL can give you that data quickly.

Cosmetics and pet products

Labeling rules differ from those for food intended for people: check the ones that apply to your products. In the warehouse, the logic is the same: if your products carry a lot number or a date, they should be tracked that way, so a lot nearing its date or subject to a recall can be found quickly.

What your 3PL needs from you

FEFO starts at the receiving dock. If the lot number and date are not captured during warehouse receiving, no software can recover them later. Here is what makes the difference:

• Lot and date on the carton label. Printed on every master carton, readable without opening the box, ideally next to the barcode. A date printed only on the units forces the team to open cartons: receiving slows down and the risk of errors goes up.
• One consistent date format. Is 05/06/27 June 5 or May 6? Agree on a format, ideally with the month spelled out, and require it from all your suppliers.
• One lot per pallet, when possible. Pallets that mix several lots have to be sorted at receiving: flag them ahead of time.
• A complete packing list. For each line: product, quantity, lot number and date. The 3PL checks what it receives against this document and reports any discrepancy.
• Written rules. The rotation method for each product (FIFO or FEFO), the minimum shelf life required per channel, how far ahead you want an alert before the date, and what to do with short-dated products: set aside, discount, donate, return or destroy.

This upfront work is what makes warehousing reliable afterwards, with a location for every lot and inventory that reflects real dates.

FEFO and retailers: minimum shelf life on delivery

FEFO applied to the letter has a blind spot: it always ships the shortest-dated lot first, including to a grocer or big-box retailer that requires a minimum remaining shelf life on delivery. The possible result: a pallet refused at the retailer’s dock while longer-dated lots sat in the warehouse.

The fix is a rule per channel. The longest-dated lots are reserved for retailers, based on the threshold in each vendor guide, and shorter-dated lots go to your online orders, with their own minimum threshold. A lot that falls below the lowest threshold is blocked, and you are notified before it becomes unsellable. Ask your 3PL whether its system supports this kind of rule, and how it applies it in practice.

Questions to ask your 3PL

An answer like “sure, we can do that” doesn’t tell you much. Ask precise questions and ask to see the screen or report:

• Does your warehouse management system apply FEFO automatically, or does the picker choose the lot?
• When do you capture the lot number and date: at receiving, or later?
• Can you set a different minimum shelf life for my online orders and for each of my retailers?
• How long does it take you to pull the list of orders shipped from a given lot? Have you ever run a mock recall?
• Can I see my lots and their dates in my online inventory access?

For the full list of criteria (temperature, retailers, access to the U.S.), read our article on the best food 3PL in Québec.

Your lots and dates at Kolineo

Kolineo is a 3PL based in Sherbrooke, Québec, at 5550 Boulevard Bourque, with a second warehouse near Chicago, Illinois. When you notify us of an inbound shipment, we ask for lot numbers or expiry dates, if applicable, along with the packing list. Our approach is simple: let’s talk before your first shipment. Tell us how your products should ship out and what thresholds your buyers set, and we will tell you plainly how we can meet them.

• 99.98% order picking accuracy.
• 99.87% of orders shipped on time.
• Inventory you can check in real time, from your phone or computer.

Selling food products? Our food warehousing and fulfillment page outlines what we offer food brands.