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Last updated on 2024年9月13日

Your team is unfamiliar with FIFO or LIFO inventory costing methods. How can you ensure successful adoption?

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Inventory management is a critical skill for any business that holds stock. Understanding and implementing the right inventory costing methods can mean the difference between accurate financial reporting and inventory valuation, and potential losses or inefficiencies. If your team is not familiar with First-In, First-Out (FIFO) or Last-In, First-Out (LIFO) methods, adopting these strategies can seem daunting. However, with the right approach, you can ensure a smooth transition and successful adoption of these inventory costing techniques.

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Tarek Sabagh - [CSCM?-CICCM?-LSSBB?-CIPA?]

Accomplished Global Supply Chain Manager I Diverse Industry experience of best practice in Procurement ,Contract…
Barry Dekkers

Founder - Leading Warehouse Platform | Empowering Warehouse and Real Estate Operators

1 Educate Clearly

The first step in ensuring your team's successful adoption of FIFO or LIFO is to provide clear and comprehensive education on what these methods are and how they work. FIFO, which stands for First-In, First-Out, assumes that the oldest products in your inventory are sold first. Conversely, LIFO, or Last-In, First-Out, assumes that the most recently acquired items are sold first. It's crucial to explain the implications of each method on cost of goods sold and inventory valuation in a way that resonates with your team's functions and responsibilities.

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Tarek Sabagh - [CSCM?-CICCM?-LSSBB?-CIPA?]

Accomplished Global Supply Chain Manager I Diverse Industry experience of best practice in Procurement ,Contract ,Warehouse ,Logistic ,Operations I Extensive knowledge in Cost saving ,Increase Revenue ,Project Management
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1. Organize training sessions to explain the concepts highlighting their advantages and disadvantages 2. Create Guidelines and Procedures that outline when and how to use FIFO & LIFO 3. Engage the team in practical exercises or simulations that allow them to apply FIFO and LIFO in a controlled environment 4. Encourage Questions so team members feel comfortable asking questions and discussing uncertainties about the methods 5. Implement Gradually in a specific product line or category to allow team members to gain confidence. 6. Identify team members as "champions" of FIFO and LIFO who can assist others and provide ongoing support. 7. Hold regular meetings to review the use of FIFO and LIFO, addressing any issues 8. Documentation of Results

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Akintayo Sofiyah

Data entry specialist|| Visual Assistant|| Inventory Analyst|| I help businesses keep their data clean, their inventory flowing, and their operations running smoothly.
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The first thing I do, is to train and educate them on what FIFO, LIFO actually is. And state out the importance of it, the effect, why it's very necessary for us. That way we won't run out of profit.

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Barry Dekkers

Founder - Leading Warehouse Platform | Empowering Warehouse and Real Estate Operators
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Informing the team what both terms are actually stands for and explain the rational behind it. Nonetheless, when you operate in a WMS environment the team will be supported by the system and tell them where and what to pick in the warehouse. Kpi 99.90 % accuracy required.

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2 Choose Wisely

Once your team understands the basics, the next step is to choose the method that best aligns with your business operations and financial goals. If your inventory consists of non-perishable items where the cost doesn't fluctuate much, FIFO might be more advantageous as it aligns with the actual flow of goods. On the other hand, if your costs are rising and you want to reduce taxable income, LIFO might be the better choice. It's important to consider your industry standards, tax implications, and inventory turnover when making this decision.

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Barry Dekkers

Founder - Leading Warehouse Platform | Empowering Warehouse and Real Estate Operators
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When you are acting as a 3pl company your customer will inform you on the required practice and the system will clearly tell you how to navigate inbound, storage and outbound flows.

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Akintayo Sofiyah

Data entry specialist|| Visual Assistant|| Inventory Analyst|| I help businesses keep their data clean, their inventory flowing, and their operations running smoothly.
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After educating the team. The next thing is to analyze and choose which will be the right practice for the company base on the type, cost, nature of the inventory.

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3 Implement Gradually

For successful adoption, it's often best to implement FIFO or LIFO gradually. Start with a pilot program involving a small segment of your inventory. This allows your team to adjust to the new system without being overwhelmed. Monitor this closely, providing support and addressing issues as they arise. Once the pilot is successful, you can extend the method to the rest of your inventory in manageable phases, ensuring a smoother transition and better comprehension among your team.

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4 Use Software

Leveraging inventory management software can greatly facilitate the adoption of FIFO or LIFO costing methods. Many modern software solutions are designed to handle these methods with minimal manual input. Encourage your team to become proficient with the software by providing training sessions and resources. This not only eases the transition but also helps prevent human error and improves overall inventory tracking and management efficiency.

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Akintayo Sofiyah

Data entry specialist|| Visual Assistant|| Inventory Analyst|| I help businesses keep their data clean, their inventory flowing, and their operations running smoothly.
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Inventory software is very important. Leverage inventory software designed to handle FIFO and LIFO methods to prevent human error and improve efficiency.

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5 Monitor Results

After implementing FIFO or LIFO, it's essential to monitor the results and make adjustments as necessary. Keep an eye on key performance indicators such as inventory turnover rates, cost of goods sold, and gross margin. Discuss these metrics regularly with your team to ensure they understand the impact of the chosen inventory costing method. This ongoing analysis will help identify any areas for improvement and reinforce the importance of the new system.

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Akintayo Sofiyah

Data entry specialist|| Visual Assistant|| Inventory Analyst|| I help businesses keep their data clean, their inventory flowing, and their operations running smoothly.
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Follow up follow up follow up! You need to monitor and make adjustments by keeping an eye on key performance area. Such as the cost of goods sold, revenue, turnover.

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6 Feedback Loop

Finally, establish a feedback loop with your team. Inventory management is not just about numbers; it's about people and processes. Encourage your team to share their experiences, challenges, and suggestions regarding the new inventory costing method. This feedback is invaluable for continuous improvement and helps foster a sense of ownership and engagement with the new system, which is critical for long-term success.

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Your team is unfamiliar with FIFO or LIFO inventory costing methods. How can you ensure successful adoption?

1

2

3

4

5

6

1 Educate Clearly

2 Choose Wisely

3 Implement Gradually

4 Use Software

5 Monitor Results

6 Feedback Loop

Inventory Management

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Your team is unfamiliar with FIFO or LIFO inventory costing methods. How can you ensure successful adoption?

1

2

3

4

5

6

1 Educate Clearly

2 Choose Wisely

3 Implement Gradually

4 Use Software

5 Monitor Results

6 Feedback Loop

Inventory Management

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感谢您的反馈

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