Lifo
Is LIFO a physical storage rule?
No. LIFO is primarily an accounting and costing assumption; physical movement can follow FIFO, FEFO, or warehouse constraints while financial valuation follows LIFO.
What does LIFO settlement mean in ERP costing?
It is the process where the system matches the newest receipts to the earliest issues during inventory close, revaluing issued quantities under the LIFO method.
Why do some systems describe LIFO as a stack?
Because each receipt becomes a new cost layer on top of prior layers, and issues decrement the latest layer first until quantity is exhausted.
LIFO, or Last-In, First-Out, is an inventory costing method that assumes the most recently received or produced items are issued, sold, or consumed first. Receipts form cost layers; each issue consumes the newest layer until exhausted. In manufacturing and warehousing, LIFO is a cost-flow assumption rather than a physical picking rule. ERP systems use a receipt stack to value issues according to financial dates.
In a real manufacturing plant handling raw steel coils, resins, castings, or chemicals, LIFO affects how material withdrawals, production issues, and returns are valued. When procurement prices are volatile, the newest, typically higher-cost receipt is recognized in cost of goods sold sooner, while older lower-cost layers remain in ending inventory. This matters on the shop floor because warehouse operators may physically pick by location, lot, damage risk, or FEFO, while the ERP revalues issues at the last available receipt cost during inventory close. Each inbound transaction adds a cost layer, and each issue reduces the latest layer first until exhausted. This layer trace supports auditability and is most useful when management wants current replacement cost to flow quickly into production variances or reported COGS, especially under inflationary pricing.
Delayed inventory close: The system cannot settle issues against the correct LIFO layers, so issue costs stay provisional. This distorts WIP, COGS, and margin reporting.
Physical picking conflicts with LIFO costing: Operators may consume older lots first for shelf-life or quality hold, while ERP values consumption from the newest layer. This mismatch between physical and financial flow confuses cycle counts and variance analysis.
Poor receipt-layer data quality: Late posting, wrong financial dates, or mixed receipts can break layer ordering. This causes wrong cost absorption, incorrect ending inventory value, and difficult audit reconciliation.