Last-in-First-out (LIFO) is a storage paradigm that most people in the food industry are familiar with. However, the food industry isn’t the only one to use LIFO to manage its storage. In many cases, LIFO is crucial to proper inventory cost management. Warehouse stock, as reported, can significantly impact gross profit margins. LIFO gives a more accurate value of a warehouse’s stock. It also makes it more difficult to inflate warehouse stock values artificially. While many retailers now use LIFO, it’s still not as widely recognized as a cost-saving measure as its relative, First-in-First-out (FIFO). If a financial department prefers to give a more stable outlook on the company’s stock, it may opt for LIFO. So how do you configure the LIFO picking strategy? Let’s take a look.
To get to the LIFO picking strategy, you’ll need to navigate these menus: IMG -> Logistics Execution -> Warehouse Management -> Strategies -> Stock Removal Strategies -> Define LIFO Strategy. We’ll be switching the 001 picking strategy from FIFO to LIFO for this use case. Opening this window should show that the Stock Removal Strategy shows “L.” When the material is withdrawn from the bin, it will use this removal type by default.
How Does LIFO Picking Work?
Using transaction code LS24, we can see the warehouse stock for any material. The warehouse stock details window describes all the pertinent information we need, including the warehouse it’s stored in, which storage bin it’s been assigned to, and the type of removal used for this storage location. If we use transaction code LT01 to create a transfer order for the material we’re looking at, we can see how this material is transferred from the bins to the order. Automatically, the system will detect which storage bin has the most current invoice date. When we assign our order, we can look at the Generate Transfer Order window to confirm this. The Movement Data at the bottom should state the date of the latest invoice since it supersedes any older invoices in the LIFO system. If the date isn’t what we expect, we may have to go back to the Configuration Details and ensure we selected the right strategy.
Is LIFO The Right Strategy?
LIFO is a useful strategy for many businesses, but they opt for FIFO instead. While LIFO may seem counterintuitive, it can add significant benefits to a company and build its trust with shareholders. Additionally, LIFO ensures that customers get the most current products. In some industries, such as food and beverages, this adds to the quality of the product and increases customer satisfaction as a result. It should still be considered in companies with more lag-time between product production and product expiry since it’s a useful addition to a company’s books. Warehouse management becomes simpler in that case. In some cases it may mean the difference between a client paying more or paying less.