The First-In, First-Out (FIFO) method of inventory valuation is a cost flow assumption that the first goods purchased are also the first goods sold. In most companies, this assumption closely matches the actual flow of goods, and so is considered the most theoretically correct inventory valuation method.
To begin with this Feature, you need to define few parameters (like Shelf life, Expirable, Threshold) in your system while some system configurations will be done by internal teams* themselves:
*Changes to be done internally:
Configure Item-level traceability for client and in General settings keep Allow multiple ageing dates on a single shelf as NO.
Please note: If you mark a product “Expirable”, you have to mandatorily mention its “Shelf Life”
Shelf Life: It is the total time for which an item is consumable or saleable. It is defined in the number of days.
Threshold: The remaining life of a product is calculated with the help of the threshold (which is given in percentage) as defined while creating the product subcategory.
While inwarding an expirable product during GRN, you have to mandatorily record its “Manufacturing Date”
On the basis of Manufacturing date the system will calculate its remaining shelf life and if it is below the defined threshold or freshness, then the system prompts the user and moves the item to QC Rejected state. (How to set the threshold or Freshness is discussed in the next article.)
When is the Freshness of an Expirable product checked?
There are many events when the Product freshness is validated and the system takes required actions. These are while receiving the goods against a PO, Invoicing the goods of an order and while receiving the Returned Items.
Before going there let us understand that with the help of an example. Say, while in-warding an item on 2 Oct 2017, the system asks for its Manufacturing date and the date 30Sept 2017 is given. The system then checks the freshness percentage or threshold at GRN, say it is 80%, which means it is allowed to be received in first 80 days. The system will allow receiving and placing it at the warehouse. If the threshold at Invoice is set to 50% and the product is packed and invoiced on 15 Dec 2017, the system checks and finds that the item was “About to expire” on 19 Nov 2017 and the date it expires is on 10 Jan 2017. Thus it will reject the item to be billed or invoiced on 15 Nov 2017. Similar process will be followed at the time of receiving returns. On the date of 10 Jan 2017 the item will be marked “Expired.”
The Freshness Percentage or threshold for any product can be set at its Sub-category level.
On the Path Products > Categories, click any category name.
Let us focus each event separately now:
1. At GRN While in-warding a product item, if the product is found to be Expired/About to expire, the system will prompt you and move it to QC Rejected state.
2. At Invoice If the Order contains one item which is Expired/About to Expire, then
• The Item status is marked as “Bad-Expired” or “Bad-About to Expire”.
• The Product Inventory type is marked to Bad.
• The Sale Order item returns to “Created” state and is open for re-allocation of inventory. This item can now be included in a fresh pick list.
The Inventory count of bad inventory increases by 1, while the Blocked Inventory count decreases by 1
If the Order contains more than one items, and only one of the items is found to be Expired/About to Expire, then
• Split the order for expired/About to Expire product items and good items.
• The same process for a single Expired/About to Expire item as explained above will be followed.
3. At receiving Returns While receiving the Returned items, the system will check the item shelf life, and if it is found to be Expired/ About to Expire, then
• The Item status is marked “Expired” or “About to Expire”
• The item inventory type and Inventory Status is set to “Bad”.
• The count of Bad inventory is increased by 1.
Auto- Ageing Mode
The Expired/About to Expire Items must be made non-saleable. Apart from the events discussed in this document, there can be items which are lying in the warehouse, under “Good inventory” while their shelf life has been completed, in other words, the shelf life/ freshness percentage is below the defined value. The system will check all such items on a recurrent basis every 24-hours. All such items will be marked as Bad-Expired or Bad- About to Expire. (Expired means that the shelf life of the item has been exhausted. About to Expire means that the Shelf life of the item is remaining but the Freshness threshold has been reached.)
The specifics are:
• All the items whose Life at Invoice or Freshness threshold at Invoicing is completed will be marked marked Bad-About to Expire.
• Those items whose shelf life has exhausted will be marked Bad-Expired.
• The inventory type for all the Expired or To be Expired items is marked as “Bad”
• For all the items which are set “Bad – About to Expire” an RTV (Return To Vendor) has to be initiated.
• The Bad-Expired items are the own warehouses’s liability.