For building material distributors, inventory strategy isn’t just about what you stock — it’s about how you move it. Two of the most common inventory valuation and movement methods are FIFO (First In, First Out) and LIFO (Last In, First Out).
While both are valid approaches, each has unique implications for cost control, stock rotation, and financial reporting — especially in the high-volume, mixed-material world of construction supply. Let’s unpack how each strategy works, and offer some advanced tips to manage them effectively with ERP software.
Quick Recap: FIFO vs LIFO
FIFO (First In, First Out) assumes the oldest inventory is sold or used first.
Ideal for:
Perishable or time-sensitive materials (e.g. sealants, treated wood, adhesives)
Products with aging risk
Compliance with expiration or batch tracking
LIFO (Last In, First Out) assumes the most recently received inventory is sold first.
Ideal for:
Price-volatile commodities (e.g. steel, cement, copper piping)
Accounting strategies to reduce taxable income in times of inflation
Advanced Tip #1: Match Method to Material Type, Not Entire Warehouse
Instead of using one strategy across your entire operation, segment by material category:
Use FIFO for materials with shelf-life concerns or code compliance
Use LIFO for high-value, price-sensitive bulk commodities
Your ERP system should allow SKU-level configuration, so you apply the right strategy for the right product.
Advanced Tip #2: Leverage Batch and Lot Tracking in FIFO Execution
FIFO isn’t just theoretical — it requires tracking when inventory actually arrives. Use ERP features like:
Batch or lot numbers linked to receiving dates
Automated pick lists that guide warehouse staff to the oldest stock
Expiry or aging alerts to reduce dead stock
This is especially important for insulation materials, adhesives, or moisture-sensitive products.
Advanced Tip #3: Use ERP Dashboards to Spot LIFO Cost Impacts
If using LIFO for accounting, track these metrics regularly:
Inventory valuation trends
Gross margin fluctuations per SKU
Cost of Goods Sold (COGS) vs. purchase price trends
This helps you avoid surprises during financial reviews and better understand the true impact of your strategy.
Advanced Tip #4: Avoid LIFO Pitfalls in Physical Stock Rotation
While LIFO may work well on paper, avoid letting it guide physical storage in the yard. For example:
Storing newest product in front of older stock can lead to aging, hidden materials
Inconsistent stacking can create safety risks or damage
Instead, decouple your accounting method from your warehouse layout — and always rotate physical stock using FIFO principles unless there’s a compelling reason not to.
Advanced Tip #5: Model “What-If” Scenarios in Your ERP
Many modern ERP platforms allow financial modeling using both FIFO and LIFO. Use this to:
Analyze how cost strategies affect profit margins
Evaluate how price changes will impact valuation over time
Compare strategies across product lines or branches
This modeling helps finance and operations teams align on inventory planning.
Advanced Tip #6: Train Your Team on What Strategy You’re Using — and Why
Warehouse staff, buyers, and finance teams should all understand:
Which SKUs are tracked under which method
How the strategy affects replenishment, storage, and reporting
What processes they’re responsible for to keep things aligned (e.g. following pick order, tagging receipts properly)
An ERP-connected training module or quick guide can reduce confusion and improve compliance.
Final Thoughts
There’s no one-size-fits-all when it comes to FIFO vs LIFO — especially in construction supply, where products range from short-lived chemicals to long-lasting steel. The right strategy balances cash flow, compliance, and operational reality.
With a flexible ERP system and smart configuration, you can manage both methods at once — and gain deeper control over margins, movement, and materials.
