FIFO vs LIFO in Electronics Manufacturing: Insights for OEMs and EMS Companies

For electronics manufacturers, managing inventory is more than a numbers game. Every day, OEMs and EMS companies navigate volatile component pricing, global supply chain disruptions, and the constant threat of excess or obsolete stock. Choosing the right inventory method directly impacts cash flow, operational efficiency, and the ability to monetise surplus components.

Most electronics companies worldwide rely on the FIFO (First In, First Out) method because it aligns with the rapid obsolescence of components and high turnover rates. LIFO (Last In, First Out) is rarely used, but it still appears in niche contexts, particularly in US GAAP-compliant subsidiaries managing stable, long-life components. Understanding both methods helps you make informed decisions that improve financial reporting, reduce waste, and streamline operations — especially when paired with innovative stock solutions like Component Sense's InPlant™.

What is FIFO and Why It Works in Electronics Manufacturing

FIFO, or First In, First Out, ensures that the oldest components in your warehouse are used or sold first. 

In practice, FIFO keeps inventory “fresh,” reduces the risk of obsolescence, and supports a lean, low-age inventory approach.

• Lean inventory means you hold just enough stock to meet production needs without overstocking.
• Low-age inventory ensures components do not sit idle for long periods, which is crucial in electronics, where rapid obsolescence is common.

FIFO also supports organisational efficiency: it minimises production delays caused by obsolete stock, simplifies inventory tracking and forecasting, and aligns purchasing and production schedules with actual component usage.

For example, a microchip with a two-year lifecycle benefits from FIFO because older units move first, reducing the likelihood of obsolescence and enabling consistent production.

At Component Sense, we bring FIFO principles to life through our InPlant™ solution — an automated, on-site system designed to optimise how OEMs and EMS companies manage inventory. By combining our automated software with our expert industry knowledge, we can help electronic manufacturers identify true excess and obsolete stock in large businesses at the earliest possible stage.

By identifying excess stock early, we can resell newer, excess components and are therefore more likely to achieve a return on our costs or even make a profit. That helps everyone in the industry chain, as we simultaneously minimise E&O and provide new stock at a reasonable price, whilst ensuring a profitable return for manufacturers.

By following FIFO, OEMs and EMS companies can:

• Reduce write-offs for obsolete components.
• Free up warehouse space for new stock.
• Improve cash flow by turning older inventory into revenue faster.

By helping manufacturers reduce e-waste at the source, we redistribute excess stock safely and responsibly, keeping components in circulation. Learn more here: Our Mission. 

Best practices for implementing FIFO in electronics:

• Structured storage: Arrange shelves so older stock is physically accessible first.
• Barcode or RFID tracking: Ensure precise inventory management and reduce human error.
• Regular audits: Confirm that first-in items are consistently moved out first.
• ERP integration: Automate stock rotation and monitor ageing components, flagging slow-moving items for action.

What is LIFO and Why It’s Rarely Used

LIFO, or Last In, First Out, assumes that the newest stock is used first. While it can make sense for businesses that manage stable, long-life components, it is unsuitable for electronics manufacturing, where rapid component ageing is common.

Globally, IFRS (International Financial Reporting Standards), which govern accounting in more than 140 jurisdictions, prohibits the use of the LIFO method. IFRS promotes transparency and consistency across financial reporting. In contrast, US GAAP (Generally Accepted Accounting Principles) still allows LIFO, mainly for potential tax or profit-stabilising advantages.

For electronics manufacturers, this distinction matters. Under IFRS, FIFO is not only more practical but also mandatory. LIFO may still be used in certain US subsidiaries, but operationally, it increases the risk of ageing stock, inventory write-offs, and inefficiencies.

Implications for OEMs and EMS Companies

FIFO ensures older components are used first, keeping inventory current and production stable. This reduces obsolescence risk, frees warehouse space, and accelerates cash conversion. It also aligns seamlessly with redistribution models like InPlant™, where visibility and speed are essential.

LIFO, on the other hand, may provide some short-term financial advantages under US GAAP but often results in inefficiencies. For electronics manufacturers operating in IFRS regions or managing global production, FIFO remains the safer and more strategic choice.

Deciding Which Method is Right 

When selecting an inventory management method, manufacturers should consider:

• Component lifecycle: Short-life components benefit most from FIFO to prevent obsolescence.
• Inventory turnover: High-turnover components align naturally with FIFO principles.
• Component cost volatility: FIFO boosts reported profits when costs rise, while LIFO stabilises profits in inflationary periods.
• Supply chain strategy: FIFO integrates easily with redistribution solutions like InPlant™, Consignment, and Outright Purchase.
• Regulatory environment: IFRS-compliant regions prohibit LIFO, while US GAAP allows it under specific conditions.

In summary, FIFO is globally compliant, operationally sound, and financially beneficial for electronics manufacturers.

Putting FIFO into Practice with Component Sense 

For OEMs and EMS companies, FIFO is more than an accounting method. It is a practical, efficient way to manage fast-moving electronic components, reduce obsolescence, and keep operations lean. When combined with Component Sense solutions such as InPlant™, it transforms excess stock from a cost burden into a profit opportunity.