Choosing the right inventory strategy is more than just an accounting decision—especially in the construction supply industry. Whether you’re managing high-turnover stock like fasteners and adhesives, or bulk materials like rebar, drywall, or insulation, how you handle inventory flow can impact profit margins, material integrity, and order accuracy.
Two of the most common approaches are FIFO (First-In, First-Out) and LIFO (Last-In, First-Out). In this step-by-step guide, we’ll break down how each method works, when to use them, and how to implement them effectively within your ERP system.
What Is FIFO?
FIFO (First-In, First-Out) means the oldest inventory is used or shipped out first. This is ideal for products that are:
Perishable or age-sensitive (e.g., adhesives, sealants, or bagged cement)
Subject to degradation due to moisture or weather exposure
Priced consistently over time
What Is LIFO?
LIFO (Last-In, First-Out) assumes the most recently acquired inventory is sold first. It’s typically used for:
Commodities with volatile pricing (e.g., steel, copper, PVC)
Businesses that want to match recent costs to recent sales (for margin clarity or tax strategy)
Non-perishable materials with stable shelf life
Step-by-Step: Implementing FIFO in Your ERP
Step 1: Classify SKUs by Shelf Life
Use your ERP to categorize items that expire, degrade, or need quick turnover.
Step 2: Tag Inventory by Batch or Receive Date
Enable batch tracking or date stamping so your system always knows which stock came in first.
Step 3: Set FIFO Picking Rules
Configure your ERP to prioritize oldest inventory first in picking/staging workflows.
Step 4: Monitor Aging Inventory Reports
Set alerts in your ERP for materials approaching age thresholds—so you can move or discount before they expire.
Step-by-Step: Implementing LIFO in Your ERP
Step 1: Identify Commodities with Pricing Volatility
Use historical price reports in your ERP to flag SKUs like rebar, metal mesh, or imported materials.
Step 2: Choose LIFO as Your Costing Method
If supported by local accounting rules, configure LIFO valuation in your ERP to reflect recent purchase costs in your margin reports.
Step 3: Manage Physical Rotation Manually (if needed)
Be cautious: even with digital LIFO, your physical storage may still need FIFO rules to avoid product degradation. Train teams accordingly.
Step 4: Audit Stock Aging Regularly
Because older stock sticks around longer with LIFO, use ERP dashboards to monitor for aging issues.
Bonus Tip: Use a Hybrid Strategy
Many building material distributors use FIFO for perishables and LIFO for price-volatile SKUs—all managed under one ERP system. Your ERP should support item-level costing rules, giving you maximum flexibility.
Final Thoughts
The best inventory strategy balances product nature, cost behavior, and operational efficiency. With the right ERP tools, you can automate FIFO and LIFO processes, monitor compliance, and improve decision-making without adding complexity.
📦 Need help optimizing your inventory strategy for construction supply? Let’s walk you through the best-fit model for your materials.
