Whether you’re raising livestock, cultivating crops in the field or grove, processing fresh food into consumer and industry saleable products, or bringing product to market and stocking shelves, some part of your operation is dependent on inventory being used or sold prior to an expiration date. Failure to effectively manage your inventory results in waste and loss and can impact the safety of the products. To combat the challenges of adhering to date-coded inventory, organizations will implement first-in-first-out (FIFO) systems that assure the proper material or product is used at the proper time.
What Is a First-In-First-Out System?
So, what actually is a first-in-first-out warehousing system? It’s an inventory control method designed to properly rotate stock so that older products are distributed first, and newer products remain in inventory. It is widely used across all types of industries—including food, retail, pharmaceuticals, and manufacturing—and applicable whether materials are stored on the shelf, in a dynamic warehouse, or in a refrigerator. It’s even more important in environments where there is a high volume of inventory with limited shelf life.
Challenge: Food Using the First-In-First-Out Method
The first-in-first-out inventory control method is designed to be the simplest inventory valuation method, specifically designed for perishable products and widely used within the food production industry. Significant consequences can impact food manufacturers as a result of poor inventory management and noncompliance to a first-in-first-out system. Specifically, poor adherence to your FIFO system can result in food spoilage, disease, product recalls, and—ultimately—increased costs.
Food recalls in the U.S. have increased more than 10% from 2013 to 2018, according to a study by the Public Interest Research Group. The average food recall has a significant impact on an organization; a recall will damage a brand’s reputation, affect sales performance, and carry with it direct costs associated with the recall process itself. Additionally, an organization could also be hit with lawsuits and litigation and compliance-related penalties. According to the Consumer Brands Association, the average cost of a recall in the food manufacturing industry is north of $10 million.
Where Industry Has Failed
Today’s reality is that even the organizations that have a system in place struggle to control their first-in-first-out operation. Organizations that have implemented a FIFO system sometimes exhibit challenges related to manual scanning and verification processes, a heavy reliance on employee intervention that can result in human errors, and antiquated systems that lack the flexibility or logic to successfully manage a complex inventory strategy.
Then there are the organizations that have no FIFO system all together. This could be due to the overall complexities of implementing a system and technology to manage inventory. It could also be the scale of the operation that creates a significant challenge with FIFO compliance; large warehouse spaces, a diversified product catalog, and high inventory turnover all add complexity to inventory management. Additionally, some companies are generally challenged when it comes to gathering highly accurate data, and they struggle to turn the data they do have into actionable insights.
While there are significant challenges to managing FIFO within the food manufacturing industry, organizations can leverage new developments in internet of things (IoT) technology to capture high-fidelity data capable of ensuring that a product can travel safely from field to fork.
Here are some ways in which organizations can digitally transform their inventory process:
- Serialized Asset Identification: The foundational building block of an effective FIFO system is identifying the data attributes of a specific asset. Traditional tagging methodologies limit the ability to do this. To enhance FIFO controls, organizations can introduce a serialized asset identification strategy through the implementation of ultra-high frequency (UHF) passive radio frequency identification (RFID) technology, which allows each asset to be identified with a unique serial number while preserving specific human readable label elements required in production. This serial identifier can be tied to various elements of master data, including date and time codes that drive FIFO logic. Once date and time codes are actualized, food manufacturers can begin planning production, inventory, and shipment at an individual asset level. In addition to UHF passive RFID, other types of serialized asset tagging technology are available including, ultra-wideband (UWB), Bluetooth, active RFID, and GPS. It’s important to qualify and select the right technology to match an organization’s individual objectives and business case.
- IoT Smart Sensors: To gather FIFO data, it’s important to deploy the IoT technology necessary to capture the serialized assets. Historically, organizations have relied on their employees and a manual scanning process to capture inventory data. Yet, at scale, this becomes difficult to manage and can result in either increased time and labor or a significant decrease in accuracy. To enhance inventory control, numerous forms of IoT technology are available that will automate the data collection process while maintaining or, in many cases, increasing the accuracy of data collection. Types of technology commonly deployed are UHF passive RFID antennas, including dock door and choke point portals, overhead antennas, and handheld devices, UWB beacons, vision systems, and active RFID beacons. All are designed to be autonomous and require minimal process change or human intervention.
- Temperature and Control Monitoring: In addition to serialized assets and smart sensing technology, companies are beginning to monitor the temperature of perishable assets, either through shipment or upon receipt into refrigerated warehouses. This has become one of the most important tools in the perishable food market due to the sensitivity to high temperatures and relative humidity of some products. Until now, this has been an incredible manual process and receiving data in real time was challenging. Now, it’s possible to capture this data through reporting systems that allow retailers and manufacturers to access insights quickly.
- Cloud-Based Software Technologies: Through the introduction of serialized asset identification and IoT Smart sensors to capture data, organizations have the data necessary to control the FIFO system; however, this data can quickly become irrelevant if organizations don’t transform it into insights and then into action. Cloud-based software technology can help to manage the vast amounts of data captured and use backend logic to actualize that data in a way that allows users to quickly identify the proper inventory to use. SaaS applications will do the heavy lifting and present the needed action to users through a user interface on a smartphone, handheld tablet, or other device with access to internet connection. Backend logic will pull back the oldest serialized inventory of a specific type indicated by a user; then the user interface will display the oldest three assets in descending order. The employee can then select the oldest inventory available for use.
By implementing IoT technology to enhance a FIFO inventory system, a food manufacturer can significantly impact the supply chain as well as the overall performance of the organization. A major positive impact of effectively managing FIFO inventory controls using IoT is quality control improvement, which can be seen throughout a food production process. Food manufacturers can realize an overall reduction in foodborne illness by shipping or consuming inventory based on the most appropriate date. As we know, this type of reduction can have a positive impact on brand perception and limit additional direct costs and lost sales. Organizations reduce the chance of product recalls, which also preserve their overall brand loyalty. Additionally, implementing a smart FIFO system can significantly reduce waste due to food spoilage. This can be one of the most costly and unnecessary challenges that impacts an organization; however, by enhancing visibility and increasing FIFO control using IoT, organizations can keep their warehouses from becoming cost centers.