What advantage does FIFO provide in inventory management?

FIFO, or "First In, First Out," is a fundamental inventory management strategy that ensures the first items added to inventory are the first to be sold or used. This method is particularly advantageous in managing perishable goods or items that may become obsolete over time. By utilizing FIFO, businesses can effectively minimize the risk of product expiration or obsolescence, as older stock is rotated to be sold or used ahead of newer inventory. This practice helps maintain product quality, reduces waste, and can significantly impact a company's profitability by ensuring that items are utilized before they lose value or become unsellable.

In contrast, while better organization of storage spaces can be an important aspect of inventory management, it is not the primary advantage of FIFO. Increased labor costs and a lower inventory turnover rate are generally seen as disadvantages and do not reflect the benefits gained from using FIFO. FIFO's focus on managing the flow of inventory ensures that products move efficiently, supporting healthier turnover rates rather than hindering them, and ultimately leading to cost savings.