Inventory reservation on LIFO and FIFO

HI ​@Ashni Nayanthara 

Just wondering whether a customer has demanded to set up reservation based on LIFO or any other business requirement for that?

Following priorities you can define for the automatic reservation and if none of them are defined, system would follows the FIFO. No system parameter available to control the reservation based on LIFO. 

​@Ashni Nayanthara I am also aware of not having an out of the box solution for LIFO, however the existence of LIFO in real world inventory management is also very rare, unless theoretically. Really keen to know the business scenario you are trying to address here please. 

Unless your business scenario really has some physical inventory LIFO situation for auto reservation, the use of LIFO is mostly in the interest of costs, and IFS captures this in Inventory Valuation Method per Inventory Part or in Site level. 

Further reading on this for you - FIFO and LIFO | IFS Community

​@Vimukthi Mahakumbura  thanks for your feedback. To be honest, this is not rare in manufacturing industry connected with chemicals as per my experience. For certain chemicals or raw materials, using LIFO can ensure that older inventory is used first to avoid potential quality issues. It is not due to expiration rather it is manufacturers’ preference. It is too bad system has never counted for it.

​@Ashni Nayanthara 

 Isn’t it FIFO you are talking about here ?

Actually, the FIFO method assumes that the first-acquired inventories (first in) is the first to be used/issued (first out) and later-acquired inventories are being held for future use

However, to use LIFO, you can use the below setting mentioned by Vimukthi. Then the automatic reservation will reserve the raw material from the newest receipts.

Vimukthi Mahakumbura wrote:

 

 

For each receipt you do for the raw material an entry is created in the below window. Now, when the automatic reservation is run (in a Shop Order) it will reserve the material based on the “Receipt Date” here, i.e., newest receipt first.

Hi ​@Ashni Nayanthara 
I think you might be getting confused? In addition to ​@Vimukthi Mahakumbura  links this is by 2p.
LIFO - Last in first out will use stock which has arrived most recently.
FIFO - Fist in first out will use the oldest inventory item first.

So your chemical industry example will want to use FIFO to ensure the older inventory is used first.
this blog post explains FIFO quite nicely https://www.logiwa.com/blog/first-in-first-out-warehousing (I have no connection to logiwa or shipbob below).

from https://www.shipbob.com/uk/blog/fifo/

What’s the difference between FIFO and LIFO?

LIFO stands for “last in, first out,” which assumes goods purchased or produced last are sold first (and the inventory that was most recently purchased will be sent to customers before the oldest inventory). It is an alternative valuation method and is only legally used by US-based businesses.

FIFO, on the other hand, is the most common inventory valuation method in most countries, accepted by International Financial Reporting Standards Foundation (IRFS) regulations.

LIFO’s pros and cons are the inverse of FIFO’s. For instance, if a brand’s COGS is higher and profits are lower, businesses will pay less in taxes when using LIFO and are less at risk of accounting discrepancies if COGS spikes. However, brands using LIFO usually see a lower valuation for ending inventory and net income, and may not reflect actual inventory movement.  

Tharindu Illangasinghe wrote:

​@Ashni Nayanthara 

 Isn’t it FIFO you are talking about here ?

Ashni Nayanthara wrote:

​  using LIFO can ensure that older inventory is used first to avoid potential quality issues.

 

 

Actually, the FIFO method assumes that the first-acquired inventories (first in) is the first to be used/issued (first out) and later-acquired inventories are being held for future use

 

However, to use LIFO, you can use the below setting mentioned by Vimukthi. Then the automatic reservation will reserve the raw material from the newest receipts.

Vimukthi Mahakumbura wrote:

 

 

 

For each receipt you do for the raw material an entry is created in the below window. Now, when the automatic reservation is run (in a Shop Order) it will reserve the material based on the “Receipt Date” here, i.e., newest receipt first.

 

​@Tharindu Illangasinghe , I’m sorry for confusion It should be corrected as follows :

For certain chemicals or raw materials, using LIFO can ensure that **NEW**  inventory is used first to avoid potential quality issues. It is not due to expiration rather it is manufacturers’ preference.

When valuation is set as LIFO, indeed system take cost from last batch but system always reserve old stock not new one :(

WyrDavidB wrote:

Hi ​@Ashni Nayanthara 
I think you might be getting confused? In addition to ​@Vimukthi Mahakumbura  links this is by 2p.
LIFO - Last in first out will use stock which has arrived most recently.
FIFO - Fist in first out will use the oldest inventory item first.

So your chemical industry example will want to use FIFO to ensure the older inventory is used first.
this blog post explains FIFO quite nicely https://www.logiwa.com/blog/first-in-first-out-warehousing (I have no connection to logiwa or shipbob below).

from https://www.shipbob.com/uk/blog/fifo/

What’s the difference between FIFO and LIFO?

LIFO stands for “last in, first out,” which assumes goods purchased or produced last are sold first (and the inventory that was most recently purchased will be sent to customers before the oldest inventory). It is an alternative valuation method and is only legally used by US-based businesses.

FIFO, on the other hand, is the most common inventory valuation method in most countries, accepted by International Financial Reporting Standards Foundation (IRFS) regulations.

LIFO’s pros and cons are the inverse of FIFO’s. For instance, if a brand’s COGS is higher and profits are lower, businesses will pay less in taxes when using LIFO and are less at risk of accounting discrepancies if COGS spikes. However, brands using LIFO usually see a lower valuation for ending inventory and net income, and may not reflect actual inventory movement.  

​@WyrDavidB  thanks for clarification. Unfortunately, I did a typo.  

Hi ​@Ashni Nayanthara,

That is strange.. I had a look in 24R2 now and it did Reserve the stocks from the latest batch, when the LIFO setting is set. 

In which version you are checking this ?

Also, how do you reserve the stock ? I meant the steps.