What does "first-in, first-out" (FIFO) mean in inventory management?

The concept of "first-in, first-out" (FIFO) in inventory management refers specifically to the process of prioritizing the use or sale of the oldest items in inventory first. This method ensures that older stock is utilized before newer stock, which is particularly important in industries where items may have expiration dates or where obsolescence can lead to financial losses.

By implementing FIFO, businesses can effectively manage inventory costs and reduce waste. This approach also helps maintain a steady flow of goods, ensuring that products are not sitting in inventory for an extended time, which could lead to losses due to spoilage or depreciation. FIFO is a widely accepted standard for inventory management, especially in sectors such as food service and pharmaceuticals, where the age of inventory significantly affects value and usability.

The other options provided do not relate to the FIFO methodology; they pertain to different concepts such as employee tracking or maintenance policies, which are not relevant to inventory valuation and management principles.