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LOFO (Lowest In - First Out)

lofo principle

goods removal according to the LOFO principle

LOFO is the abbreviation for Lowest In - First Out and stands for a specific type of storage in which goods are stored depending on the price. In this process, the cheapest goods are removed first.

Table of contents
  1. definition
  2. storage strategy
  3. Application
  4. storage system

definition

Lowest In - First Out, or LOFO for short, is a storage strategy in which the goods with the lowest value are removed first from the respective storage location. At the end of the year, only expensive / the most expensive goods are left in the warehouse.

The opposite of this method is the HIFO method . In this storage strategy, the most expensive items are removed first.

storage strategy

The purpose of a storage strategy is to organize storage and retrieval work in the warehouse in companies and businesses and to keep an overview. If a storage strategy is not used, there will be losses in profit optimization. If no storage strategy is used, this corresponds roughly to the LIFO method . Here, the items that were stored last are removed first.

There are other approaches to the order or principle in which articles or raw materials are stored and removed - for example the FIFO, HIFO or FEFO method and dynamic warehousing.

Application

The LOFO method is generally rarely used because it is a complex procedure: the value of the stored items must always be recorded and the order for removal must be re-determined and set accordingly.

In addition, companies attach importance to removing the high-quality products from the warehouse first in order to be able to buy more cheaply or to avoid storage risks (damage, theft, etc.).

However, this method can be used sensibly in a warehouse with a security function, since this type of storage does not focus on profit optimization. The focus here is on maintaining production. It is therefore possible that an expensively purchased product remains in the warehouse while the cheaper option is used.

storage system

In order to be able to use a warehousing method at all, suitable storage systems should/must be available. Since the LOFO method is quite complex and it must always be known where the most expensive goods are located, a storage system with fixed storage locations is essential - unless a company prefers constant warehouse movement for certain reasons.

High-bay warehouses can be used, for example. Merchandise management systems used in parallel provide support by digitally displaying where each product is located.

By the way: The LOFO method may not be used in accounting under commercial law. Why? It contradicts the strict lower of cost or market principle.

See also