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FEFO/FIFO impact on the warehouse

18/11/2015

FEFO/FIFO is a technique for managing material that aims to consume or supply products (to make them flow through the supply chain) by selecting those closest to expiry first (First Expired, First Out), and when the expiry is the same, the oldest first (First In, First Out).

Expiry can become the foundation on which a warehouse’s entire operation depends. If the operational basis depends on when an item was manufactured, its sell-by date and its time of arrival at the logistics centre, then the rules of the game are much stricter because the cost of an erroneous shipment to a client can be very high.

Not only are sales reduced with a returned item or unsatisfied demand, but expired foodstuffs on a supermarket display rack can erode a brand’s image, not to mention the potential consequences of its being consumed.

The main concept behind FEFO/FIFO is the batch. This is perhaps one of the most popular logistical terms among end consumers, doubtlessly because it affects elements of our lives as important as food and health.

There are many kinds of batches: consignments, series, dye lots, editions, etc., and not all of them require the same type of management. For example, it may seem subtle, but there is a big difference both in terms of management and execution between having to log the batch from which a client is supplied and shipping out a batch that has been pre-selected, whether by the buyer (specific batch) or by the distributor.

The “E" in FEFO gives us a date linked to a product’s life cycle that tells us when it will no longer be usable. If we think about it, not all items expire for the same reason. Some expire naturally, while others are given statutory or pre-defined expiry dates. Furthermore, we can find different ways of understanding the concept of expiry. This means the “E" has a lot of power when managing and planning the life we give to a product, even when the expiry date has passed.

The “I” in FIFO refers to the date on which a product’s logistical distribution cycle begins with its receipt and stocking. According to this logic, the more time an item remains in the warehouse the greater the probability of its deterioration or obsolescence. The date given for “I” is the entry date, and in the case of a distribution network involving multiple warehouses it must be carried over to each successive location to ensure cohesion, because otherwise the logistical cycle would have to start anew in each warehouse.

The importance of FEFO/FIFO lies in the fact that it encompasses several of the cornerstones of a company’s priority management:

  • It is a requirement demanded by the market.
  • It is a quality target.
  • In some industries it is legally regulated.

Here are some of the recommended storage solutions for materials managed with FEFO/FIFO technique. This guide is only meant as an illustrative example. An ideal system will depend on many other criteria besides the management technique.

Storage system for stock managed using the FEFO/FIFO technique

Direct Access Systems Handling Equipment (Forklift)
Conventional Pallet Racking Stacker, Retractable or Counterbalanced
Conventional Pallet Racking on Mobile Bases Retractable or Counterbalanced
Double-Deep Conventional Pallet Racking Specific Double Deep Retractable
Automated Conventional Pallet Racking with Narrow Aisles Bilateral or Trilateral Stacker Crane
Automated Conventional Pallet Racking Stacker Crane
Double-Deep Automated Conventional Pallet Racking Stacker Crane
Compacting Systems Handling Equipment (Forklift)
Automated Live Roller Stacker Crane

 

The cost of FEFO/FIFO mistakes for products requiring this management technique can emerge in some of the following ways:

  • Cost of stock expiring on the shelf.
  • Cost of premature obsolescence.
  • Cost of a product with visible signs of deterioration.
  • Cost of items returned by clients.
  • Cost of time lost looking for a product in the warehouse.
  • Opportunity cost of the unsatisfied demand.
  • Cost of the damage to the brand’s image, potentially even leading to legal claims when the product’s properties are altered, thus affecting the consumer.

To understand this better we need only put ourselves in the shoes of a consumer and think of how we act:

  1. When we are in the refrigerator aisle choosing a pack of yoghurts (consumer role) we apply precisely the opposite technique, that is, we glance at the label and pick the one with the latest expiry date (this way they will last longer) and we check to make sure the product doesn’t have any defects (which is related to FIFO).
  2. When we are at home (distributor role) we complain if a family member fails to observe FEFO/FIFO and doesn’t choose the yoghurt with the earliest expiry date, urging them to consume the one they’re “supposed to” consume.

Why do we behave this way? It is simply an intelligent form of behaviour that aims to minimise costs arising from throwing out expired products in our family finances and maximising an idea of quality based on days of shelf “life and properties such as ‘most recent’, ‘newest’, ‘freshest’, and so on. The consumer’s two-fold strategy is reproduced between sellers and buyers in a supply chain.

Our example embodies a basic rule and paradox of the market: if a buyer has the choice, and the price is the same, the buyer always chooses what is seen as the best product, but if the seller fails to properly synchronise the placement of items on the market, perhaps even prematurely placing the new batch such that different batches of the same item are displayed together, then the seller will probably not achieve greater profits but rather will stop the older items from being sold and engender a certain mistrust in the consumer. To make the paradox even more complicated, some companies could even come to reason that from time to time stockouts are preferable.
 

Handling via ERP/WMS

An —ERP/WMS— information system’s approach to batch management must, at the very least, conceive of the item-batch combination as if it originated a new item code.

Among the batch attributes, FEFO/FIFO uses:

  • expiry dates;
  • batch creation date (registration in the system);.
  • date of arrival (arrival at the warehouse).

These three kinds of dates are used in the algorithms for assigning stock and are involved, for example, in launching a picking plan. Once there are a group of candidate placement locations for each item, the requested amount is assigned in the following order of preference: expiry date, creation date and date of arrival.

If the system did nothing more than this, expired batches could be sent out. It is not that uncommon for this to happen—, and the technical solution is to take the batch status attribute into account. This attribute affects all the presentations and amounts in the system.

To accomplish this, the assignment of stock to orders is restricted to items with an active batch status, and this status is changed to “inactive” a period of “n” days before its expiry date. A logical block is thus created for stock that, while not yet expired, would be returned as it exceeds the minimum time necessary to be sold. The value of “n” days varies depending on the product, delivery time and even the client or recipient.
 

Let’s Go Down to the Warehouse

The FEFO/FIFO technique, with such a short and easy-to-understand name, may lead one to think that such obviousness should be reflected in a simple deployment in the warehouse environment. If we ask what needs to be done to deploy it, we even find many people who believe themselves perfectly qualified but who answer: “It's enough to number the pallets in the order in which they are received and store them accordingly, and take the appropriate one for picking”?.

Even if this statement were the bare minimum required, it takes various things for granted:

  • That the pallets are all perfectly identified upon arrival.
  • That incoming batches are always the most recent ones.
  • That we can store them in the most appropriate places.
  • That during picking it is possible to replenish the pallet for the right batch in time. The complex reality of manufacturing, distribution and the uncertainty of today’s markets means that often the FEFO/FIFO technique becomes a continuous improvement target or serves to adjust supply chain indicators such as service level, the average number of days of a supplier’s credit or the more well-known sales indicators. Here are some examples:
    • Increasing service level by risking a reduction in the aforementioned value of “n”, although this may entail return costs.
    • In the case of a large order from a client which would take it over its credit limit, opting not to send a batch with a high probability of not being sold due to impending expiry.
    • Running a promotional campaign with reduced prices for products that have expired but have alternative uses.
    • Breaking the FEFO/FIFO system and offering a client the most recent item to attract their business or push out a competitor.

If we train ourselves in logistics and reflect on the usual requirements of the FEFO/FIFO system we wish to implement in our warehouse, we might come to consider four lines of action:
 

  • IDENTIFICATION: Product and layout elements.
  • INFORMATION SYSTEM: ERP/WMS
  • RESOURCES: Storage systems, layout, transportation and staff.
  • ORGANISATION: Procedures, task synchronisation and work stations.

The solution is not merely making a list of necessities and improvements for each area, prioritisation (ABC), obtaining financial approval for the project and implementing it. That would work in most cases but at added expense (it would be as if we still built bridges like the ancient Romans).

Logistical acumen means realising what the real reasons are, the links between areas, and the capability of deploying resources to deal with a problem, for example, with a dose of organisation and a dose of improved WMS.
 

Identification

Identification is relatively easy in terms of layout. Any element subject to a logistical task is labelled: placement locations, aisles, docks, zones, areas, doors, etc.

Labelling and identifying products or batches is more involved. The specific task in the logistical cycle they are involved in must be defined (receipt, storage, picking, packaging, dispatch, etc.) along with the degree of information depending on the sophistication of the ERP/WMS.

For example, a GS1-128 serial shipping container code (SSCC) could be enough for us to reference all of the content of a dispatched pallet. Aside from label design and printing, it must be ensured that labels are easily readable by the scanner under the operator’s ordinary working conditions.
 

Information System

For each individual case, FEFO/FIFO will offer a series of new functions that we will want to be covered by the ERP/WMS software system. That obviously also means redesigning some existing functions. Here are some examples:
 

  1. New functions to take into account:
    Rules for mixing batches. For example, suppose that, due to space issues, it is determined that when there is a peak in received pallets they must be brought to the picking area and we also have an inalterable restriction preventing batch mixing in a placement location. In that case it must be decided which batch will be prioritised. The most numerous? The one with the earliest expiry date? The batch that was already in the placement location?
    The new batch that needs to be stored?
    Batch genealogy (origin and destination log).
    Allocation of a specific batch, sole batch or standard batch.
    Handling of multi-reference/single-reference, multi-batch/single-batch pallets for each placement location, with the corresponding effects on volumetric calculation algorithms.
    Batch status changes.
     
  2. Redesign of functions competing with FEFO/FIFO:
    Cross-docking.
    Prioritising pick-up by zones or storage systems.
    Prioritising shortest allowed trips.
    Replenishment at set picking location.
    Transfers between warehouses (alteration of the warehouse entry date).
    Changes in documentation and labels.

 

Resources

This is where it becomes necessary to know how to listen to warehouse managers, although that doesn’t mean giving them carte blanche. As a rule the impact of the available resources must be quantified and measured before any decision is made. Sometimes we find physical resources that run completely counter to the nature of a FEFO/FIFO system, such as:

  • Compact storage in a front-entry rack favours LIFO (Last In, First Out).
  • Floor stacking (known by various names: mass, block, area etc.) makes access more difficult for the ideal pallet.

The best solution is the one that meets the needs of each business. It is worth using our ingenuity to take full advantage of the resources we already have.
 

Organisation

Here we can find various procedures that may need to be changed. Generally, although not always, they need to be adjusted in ERP/WMS.

For example, a FEFO/FIFO system in a rigorous environment could be approached by adding a package auditing task before dispatch, thereby using a combination of human and organisational resources with the support of the information system.

Lastly, another approach we will need to use with FEFO/FIFO is the idea that it will have different degrees of rupture. That is to say, there are incidents that must always be avoided and are prohibited, while others are permissible. It is even possible for the same incident to be acceptable to some clients and rejected by others.

Behind this methodology there lie concepts of marketing, quality and legality. So another way to manage FEFO/FIFO is to search for less demanding alternatives to our usual market, and on this point the issue is not just logistical but also dependent on the company’s ethics.

 

Case studies

Case 1: Since there aren’t enough placement locations on the racking for the order, it must be placed on the floor, which makes it impossible to pick up the pallet allocated by the system.

One possibility would be to do an ABC on products and examine the necessary volume list. Perhaps some units of product A could be deposited on the floor because, since their volume is smaller (by about 20%), they tend to have more units in stock and it is thus easier to find them. Plus, their turnover rate could even practically ensure that they will not expire in the warehouse.

In this sense, I remember making a visit to a major biscuit manufacturer’s warehouse where FEFO/FIFO was adhered to perfectly because of the resources available. The analogy would be a train (single-reference) looping around a closed circuit. The pallets for a batch were stored on the floor as if on a freight wagon. Cardboard dividers were used to separate the batches (coupling between the wagons).

Storage was done from back to front, and always at the end representing the locomotive. Consumption, or the retrieval of pallets, was carried out using the pallets at that time in the rear wagon. Since these pallets had been sent directly from the factory line, the received batch always had the latest expiry date, so FEFO/FIFO was channelled into FIFO.

Case 2: Since there are not enough picking placement locations, the only option is to store various products, even different batches, in the same location.
One solution would be to change all of the placement locations from multi-reference/single-batch (1) to multi-reference-multi-batch (4), even though this is a drastic measure, or perhaps a combination.

If the only solution is to mix different items together, then we have to do it, but we should play it smart by gathering items in the same placement location that differ through an easily identifiable physical characteristic (colour, size, weight, roughness, etc.).

To minimise mistakes it is not always advisable to follow the 1-2-3-4 pattern from most to least placement locations. We may, at times, prefer the 1-3-2-4 pattern, and of course the pattern will be affected by the kinds of storage systems involved.