FIFO (First In, First Out)

FIFO (First In, First Out)

Overview

FIFO, or First In, First Out, is a method of inventory management where the oldest items in inventory are assumed to be sold first.

This ensures that inventory costs are based on the assumption that the oldest items are sold first, contributing to accurate cost calculations.

FIFO Function

The Correct FIFO function ensures that a valid cost is associated with every part number in inventory before reconciling inventory. This involves updating or adding missing FIFO records to match the on-hand values, thereby maintaining accurate costing.




FIFO Quantity

If the Part Number is set up in a Warehouse that is configured to use FIFO Inventory Cost, there will be a FIFO Section on the Pricing/Qty Tab of the Part Number displaying details of the Part Number quantity and FIFO Cost. You can verify if the Warehouse is set up to use FIFO Inventory Cost by accessing the Parts Item Setup and checking the Warehouses tab for the FIFO Inventory Cost option.

Entries in the FIFO section are made and updated when receiving the Part Number in on a Parts Purchase Order or when selling and returning a Part on an Open Work Order, typically during monthly inventory reconciliation. This section allows manual addition and removal of FIFO entries to ensure that the FIFO quantity matches up with the On Hand Qty of the Part.

An option is available in the Parts Item Setup to mass update all Parts in a Warehouse that have a different FIFO Detail Quantity than the On Hand Quantity of the Part, ensuring consistency.




FIFO Cost Calculation

FIFO cost is determined by the system. The correct FIFO option scans all items in inventory to identify any missing part costs. These missing records can be corrected or added to the system at the part record cost to ensure FIFO records match the on-hand values.



Manual Adjustment

Users have the option to manually update the cost on the parts record, either during receiving or through manual entry.

How to Create a Part using FIFO Feature

  1. Go to the General tab in the Parts module.
  2. Select the desired warehouse.
  3. Enter a part number and description.
  4. Under the Pricing/Qty tab, select the parts group, add the quantity, and specify the FIFO cost.
  5. Click the "+" sign to add the part.
  6. To add more FIFO parts at different prices, click the New FIFO button and repeat the process.
  7. Once all FIFO parts are added, click the Add button to create the part.


How to Order a Newly Created FIFO Part

There are two ways to order a newly created FIFO part: through a Purchase Order (PO) or through a Work Order (WO).


Part to Receive through a PO

  1. Within the Parts setup/inquiry module, click on the PO button.
  2. Click on the Next PO # button to create a new PO.
  3. Under the header tab, click on the Vendor # magnifying glass to select a desired vendor.
  4. Once the vendor is selected, go to the Parts tab within the same window.
  5. Enter the part number to populate part details.
  6. Add the quantity and select the desired warehouse.
  7. Click on the Open PO button to create the PO.
  8. Finally, click the green plus sign button to add the desired part to the newly created PO.

Part to Receive Through a WO

  1. Open the Invoicing menu under the General tab to access the Sales Document window.
  2. Select Branch, Department, and Type of Sale, and input the Ship-To Customer Number.
  3. Click on "Open" or "Quote" to create a Work Order.
  4. In the Work Order, go to the Parts tab and choose the warehouse.
  5. Enter the part number, quantity, description, type of sale, and sell rate.
  6. Click the "+" sign to add the part to the Work Order. If inventory is insufficient, click "Yes" to back order. When you click ok, you’ll notice now the part has been added to your work order AND is highlighted in a light red/pinkish color.  This highlight indicates the item is a backordered item.
  7. When ready, create a Purchase Order to order the parts from the vendor.
  8. In the Purchase Order, select the backordered items from the Back Order tab and click "Order" to assign them to the PO. Parts will disappear from this tab once ordered.
  9. Correct any costs in the Parts tab before receiving the items.
  10. Any parts listed in the Parts tab of the Purchase Order have been assigned to the specified PO and will need to be received when the parts arrive. Ensure to correct any costs before receiving the items to maintain accurate records.



Receiving Parts Procedure

Finally, you will have to follow the Receiving Parts procedure to receive the required parts for either process: Part to receive through a PO or Part to receive through a WO to add the parts to your inventory (On Hand Quantity).

NOTE: This comprehensive guide covers all aspects of FIFO, from its principles to practical implementation in inventory management.

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