FIFO and LIFO Policies in Inventory Management

Evaluation of FIFO (=first in first out) versus LIFO (=last in first out) policies in stock depletion problems has hitherto been based on the classification of field life functions as convex and concave, the optimal policy for n > 2 units being determined when the optimal policy for n = 2 units is known. This paper suggests a test for selecting the optimal policy for the n = 2 system, for field life functions with a derivative equal or larger than −1, and by induction the conclusions are extended to n > 2. When the derivative is smaller than −1, LIFO is shown to be an optimal policy.