What are the disadvantages of the FIFO method in inventory management?

What are the disadvantages of the FIFO method in inventory management?

The FIFO (First In, First Out) method can lead to several disadvantages, such as potential obsolescence of older stock, especially in industries with rapid product changes.

Can you explain how obsolescence affects businesses using FIFO?

Certainly! When older inventory is not sold quickly, it may become outdated or less desirable, leading to losses for businesses.

Are there specific industries where FIFO is particularly disadvantageous?

Yes, industries like technology and fashion, where products change rapidly, often find FIFO challenging due to quick obsolescence.

What alternatives to FIFO can businesses consider?

Businesses can consider methods like LIFO (Last In, First Out) or weighted average cost, depending on their inventory needs.

How can businesses mitigate the disadvantages of FIFO?

They can implement regular inventory reviews, use promotions for older stock, or adopt just-in-time inventory practices.