FIFO and LIFO

FIFO (First-In, First-Out) and LIFO (Last-In, First-Out) are the two basic rules that govern the order in which inventory leaves the shelf. There are in fact two distinct dimensions: physical rotation and accounting valuation. Physical FIFO means the oldest stock leaves first — essentially mandatory for items with expiry dates (food, pharmaceuticals, chemicals, cosmetics) and for short-life products (the #011 newsvendor problem family). Physical LIFO appears naturally in bulk storage (coal, sand, paper rolls) where the most recently added layer is on top. On the accounting side, FIFO vs LIFO shapes Cost of Goods Sold (COGS) and ending-inventory value: under inflation, LIFO produces higher COGS, lower inventory value and lower tax — which is why it was long preferred in the US (permitted under US GAAP). But IFRS prohibits LIFO — so in IFRS-applying countries, including Turkey, inventory accounting is done with FIFO or weighted average. The Turkish SMB question is therefore usually 'FIFO or weighted average', with LIFO off the table. From an OR perspective, FIFO is supported physically by flow racks and gravity racks; LIFO arises in push-back rack or stacked storage. For picker routing (#041), FIFO requires tracking the oldest lot location per SKU — modern WMS handles this via lot or batch serial number.