Classification Of LIFO Operated Assembly Racks

LIFO is one of the effective warehouse management principles commonly used today

General introduction to the LIFO principle

LIFO, which stands for "Last In, First Out," is a widely used efficient warehouse management principle. This principle means that the items that are added to the inventory last are the ones to be used or sold first. Therefore, newer products are prioritized for use, while the stock remaining at the end of the year comprises items purchased earlier in the year.

Which industries currently manage inventory using the LIFO method?

From the introduction of the concept, we have somewhat understood the operational methods. However, it is not uncommon for people to question if the items purchased at the beginning of the year and left until the end of the year might no longer be usable, or that doing so prevents the business from selling products while also incurring additional maintenance costs.

Therefore, the LIFO method is only suitable for certain industries with specific products that do not have a limited lifespan, such as construction material suppliers (bricks, sand, stone, steel, etc., and other construction support tools). This method also provides substantial benefits for businesses in terms of taxes and costs. We will discuss this further below.

Construction materials warehouse is a suitable field to manage according to the LIFO method

Why is it necessary to use storage racks that operate according to the LIFO method?

When business owners turn to storage racks, they all hope to receive effective solutions for using the current warehouse space optimally without needing to expand, thus supporting maximum manual labor efficiency as before and helping to improve productivity and operational efficiency in warehouse management. Additionally, arranging and using storage racks correctly and adhering to the manufacturer's regulations can save businesses up to 50% in both time and costs.

The presence of storage racks in any warehouse, whether large or small, proves that businesses' needs are being met. Depending on the business scale and warehouse area, racks can vary in specifications and models.

What value does the LIFO operation principle bring to businesses?

Risk Reduction

The first benefit is the reduced risk of market price fluctuations impacting the business's own products. It allows you to sell at the right price at the current time when the latest production costs are calculated. Thus, the potential for losses on goods is very low.

Increased Revenue and Profit

This benefit contrasts with the above point; suppose the costs of producing goods are rising, then this is when the LIFO method can show its value to the unit. It also allows you to sell these goods at the warehouse release price from an earlier time. Thus, you will earn a higher profit due to the lower production costs.

This leads to another benefit linked to the accounting department, specifically, the business will pay less tax to the government if it accurately reports the current production costs. This is a significant advantage that any company would want.

From these first two benefits, we can see that using the LIFO principle helps businesses stay updated with the latest price fluctuations and allows them to flexibly price their products, thereby bringing high benefits.

LIFO Method in Inventory Management and What to Consider

For warehouses that use traditional rack systems and have to be manually operated from A-Z, managers need to continuously train employees and mention precautions to avoid careless situations that seriously affect people and goods inside the warehouse.

Correctly identifying and understanding the products that the company is trading is very important; applying the wrong method can not only lead to terrible outcomes in business but also affect surrounding relationships such as customers being dissatisfied with product services due to poor quality, partners stopping cooperation due to lack of credibility, or employees becoming dissatisfied and quitting, leading to a high unemployment rate.

If your business deals with many different products or operates a logistics service model, it is often necessary to receive a variety of goods, so do not bind the warehouse to use only one method, but instead use various methods flexibly to make the management process smoother and more efficient.

Above are the details that Eurorack has provided for you about the iron rack models classified according to the LIFO principle. Be a smart user to know what you need, so you do not have to bear the severe consequences both mentally and physically.

Please contact Eurorack immediately if you have any questions.

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