How does FIFO work?

This document describes the operation of FIFO, an alternative to the standard inventory valuation algorithm of RetailVista. FIFO stands for 'First in First out'. 

By default, RetailVista works with the last known purchase price. When an product is sold, the purchase price of the product is determined at that moment and stored in the sales line, so that the margin can be calculated afterwards.

When printing an inventory report, the current inventory of an product is multiplied by the purchase price of the products at that time.

The disadvantage of this method of determining the purchase price is that it does not take into account, for example, purchases at promotional prices. A batch that is purchased at a lower price is sold at regular purchase prices, which gives a lower margin.

Within the product statistics, the information regarding FIFO can be viewed, see the example below:

By using the FIFO license, batch administration is used. When an product is sold, it is traced back to which receipt document the product would have come from based on the inventory of that product. Subsequently, the purchase price from that receipt document is applied. So if a batch is purchased at a lower price, FIFO will find a cheaper purchase price and therefore provide a better margin. It is essential to work with the correct purchase price when booking products, otherwise FIFO will never provide added value.

For this reason, it is very useful that the EPL (Electronic packing list) also contains purchase prices.

By default, this is not the case within EDI, but there are specific implementations known where a purchase price is sent along.

Furthermore, a stock adjustment leads to a recalculation of the average purchase price based on FIFO. If FIFO is active, the value based on FIFO is mentioned everywhere when mentioning inventory values. The accuracy of the inventory value also improves when FIFO is used.

FIFO is not a black box: In store maintenance, the logging for FIFO can be activated. This log provides insight into how RetailVista arrives at a certain average purchase price. This makes the operation of FIFO verifiable.