A First in First Out inventory management is based on the valuation that the stock or goods that you purchased first will also be the first to be sold. Before we talk further about this method, let’s understand what inventory management is and why you should have one for your business or organization.
What Is Inventory Management?
In businesses or organizations, inventory refers to either raw materials or finished products. Inventory management can then be seen as the processes involved and undertaken by organizations in sourcing, processing, storing, and selling inventory.
A first in first out inventory method is systematic and must be carefully executed to ensure that the right inventory or stocks are at the right place and at the right time and also been sold at the right price.
Inventory Management and Supply Chain
Inventory management forms an essential aspect of every industry’s supply chain. As such, a deep understanding or insights about inventory management ensures that you maintain a sustainable and efficient workflow.
As a crucial facet of the supply chain, inventory management deals with controlling and monitoring purchases (from the source to the end-user). It also touches on taking stock of items in your storage facility, determining the prices of your commodities, and order fulfillment.
Importance of Inventory Management
Regardless of the type and scale of your business, keeping track of your stocks is essential to the survival and longevity of your company. A smart inventory management system will enable you to spot potential problems like blown-out prices, reduced customer services, low-profit margin, and even business failure.
Inventory management, at the very least:
- Gives insight into your financial standing;
- Helps you identify opportunities in the market;
- Helps you understand your customers’ behavior towards your good or services;
- Tells you your customers’ preference,
- Enables you to forecast future trends and plan ahead of time.
Types of Inventory
- Raw Materials: which are the items or components you need to make the final product. In a polymer manufacturing company, the raw material would be crude oil or natural gas;
- Work-In-Progress Inventory: which refers to products undergoing production and are yet to reach the final stage. This would be the resultant polymer materials; either thermoplastic or thermoset,
- Finished Goods: which are items or products that’ve gone through the entire production process. This could be any polymer product for which a production process is intended.
What Is First in First Out (FIFO) Inventory Method?
The first in first out method of inventory management suggests that cash flow on inventory will follow an order where items that are purchased first and also been sold first.
First in first out inventory management resonates well with most businesses because selling off older goods first eliminates the risk of inventory obsolescence. FIFO allows you to remove older items from your first in first out inventory account and create room for new supplies.
Inventory Management in Polymer Industry
In the polymer manufacturing and processing industry where complex supply chains are implemented, the need to fast track the acquisition of raw materials, processing, production, and warehousing of finished products cannot be overemphasized.
There has to be a constant and continuous flow of every operation. The first in first out definition is applied practically in polymer industries. You wouldn’t want to keep piling up finished products in your facility where they could exhaust their lifespan and incur a loss to the company.
You need to push your finished products out to the consumers to recover your expenditure and plan for getting more materials for the next production. The above scenario is a perfect first in first out example in any manufacturing industry, including those that deal with polymer processing.
How FIFO affects Polymer Lifespan and Quality
Polymer products are known for their remarkable long lifespan and exceptional qualities. Their mechanical strength and resistance to most chemical and biological elements make them desirable for numerous applications.
These suitable properties make them choice-materials in the production of high voltage cables, pipes, flexible, lightweight, and durable auto parts, among others. However, heaping polymer products for an extended period results in a gradual loss of their properties, and their performance could diminish.
Know more about the FIFO method with Polyexcel
The first in first out inventory approach will help prevent such occurrences that will hinder polymer performance. If you want to know more about this method, check Polyexcel’s blog.