What is a consequence of not following FIFO in inventory management?

In inventory management, the FIFO (First In, First Out) method is crucial for ensuring that the oldest stock is sold before newer stock. If a business does not adhere to this principle, it risks having older products sit unsold for extended periods. This is particularly important for perishable goods, which can spoil, and for items subject to rapid technological advancement or fashion changes, which can become obsolete.

By failing to use FIFO, a company may find that it has outdated stock that can no longer be sold at full price or may have to be discarded entirely, which directly affects both the financial health of the business and customer satisfaction. Consequently, managing inventory with FIFO helps mitigate these risks and ensures that the products on shelves are fresh and relevant to consumer demand.