Q 540. What is First In, Still Here (FISH) inventory? How does it affect the effectiveness and efficiency of inventory management supply chain operations, and what are some of the key benefits and challenges of using this approach?

 

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First In, Still Here FISH is simply a reference to the physical presence of old, unsold items in inventory.

A large amount of FISH inventory also shows that there is an extreme working capital investment in inventory. For example, Items such as seasonal items and luxury items may qualify as FISH because they may be out of season before they have sold out completely or because they are not considered necessary by the average consumer.

 

In what way, we can say if inventory is considered FISH?

 

The earliest inventory items purchased are the last inventory items sold, therefore FISH may be referred to as first-in, still here, or FISH. Therefore, the last inventory items procured are assumed to be the first inventory items to be sold.

 

Can data analytics be used to detect and eliminate FISH inventory?

 

Yes. Data science can be used to detect FISH first by classifying the characteristics of slow-moving inventory, then using machine learning algorithms to automatically detect which items are FISH. With this information, one can make decisions on how best to manage inventory or incur unnecessary costs.

 

3 Key Benefits of First In, Still Here (FISH)

 

1. Re-evaluating your inventory management system.

Achieving this one can tell if there is a way to reduce the amount of time it takes for products to move through your warehouse and into customers’ hands.

 

2. Try implementing a new FIFO (first in first out) policy or FISH (last in first out) policy.

This can allow you to reduce the overall age of your inventory at any given time.

 

3. Think about Ways you can optimize your supply chain.

For example, work with many suppliers instead of just one or two so that your product flow isn’t dependent on any one supplier going down or having problems with their delivery schedule.

 

3 Challenges - First in Still Here (FISH)

 

1. There is an excess amount of inventory on hand that may not sell before it goes out of date.

This is regularly the case with products that have long shelf lives and/or low demand. The longer the product sits on your shelf, the less likely you are going to sell it at an Actual price.

 

2. FISH indicates poor materials management within the business.

 This means you over-ordered materials and/or made mistakes in procuring decisions which led to having more than you need for existing production.

 

3. FISH indicates sales are lower than expected—or that they will be.

This also means sales could be lesser than predicted in the future. Businesses, therefore, want to reduce their current stock in order to avoid writing off obsolete products later.

First In, Still Here (FISH) inventory is a method of inventory management that prioritizes using the oldest items in inventory before using newer items. This approach is in contrast to the First In, First Out (FIFO) approach, which uses the newest items in inventory first.

 

The FISH inventory method can have a significant impact on the effectiveness and efficiency of inventory management and supply chain operations. Some of the key benefits of using the FISH approach include:

 

1. Reduced waste: Using the oldest items in inventory first can help reduce waste by ensuring that items do not expire or become obsolete before they can be used.
2. Improved inventory turnover: By using the oldest items first, FISH can help improve inventory turnover, which can help free up space and improve cash flow.
3. Improved product quality: By using the oldest items first, FISH can help ensure that products are of the highest quality and have not been degraded or damaged over time.

However, there are also some challenges associated with using the FISH inventory approach. Some of the key challenges include:

1. Increased complexity: Managing inventory using the FISH method can be more complex than using the FIFO method, as it requires tracking the age of each item in inventory.
2. Increased risk of stockouts: Using the oldest items first can increase the risk of stockouts, as it may not be possible to restock inventory quickly enough to meet demand.
3. Increased risk of obsolescence: Using the oldest items first can increase the risk of obsolescence, as items may become obsolete before they can be used.

 

FISH Inventory, acronym for First In, Still Here Inventory, is traded as buzzword, for accounting practice of referring to “obsolete, unattended, neglected” merchandise, in the company’s inventory. The FISH inventory items are evaluated at a lower price to their actual cost, due to state of neglect and deterioration witnessed, during storage in company’s reserve space.

The traditional cost associated with inventory stock such as: the cost of capital, insurance premium cost and space utilization in company storage go-downs, are a further an add-on expense, towards maintaining First In, Still Here Inventory Items. The concern is augmented further, with no valid explanation, for presence of unsold inventory items and lower disposal of finished goods, in company projects and industrial marketplace.  

 

The occurrence of First In, Still Here inventory items, leads to under-utilization of company’s capital and over-storage of raw material, fixed assets, work-in-progress items and finished merchandise in inventory go-downs. As-such, the company with First In, Still Here inventory, is rated below-par, in comparision to its peer organization.

 

A traditional analyst may lack strategies, towards effective time-bound utilization of these unfinished raw goods, and finished product in FISH Inventory. A prudent approach may be to implement either of the following valid approaches, towards inventory-utilization listed hereunder as: 

 

FIFO “First In First Out”, approach involving the consumption of first raw good procured or first finished products, in company projects and industrial marketplace. The inventory item thus sold is removed from the inventory, and its cost reported in company accounting as an entry in Company’s Income Statement as “Cost of Goods Sold”. The cost of goods sold is a general ledger count maintained in perpetual inventory system, (that represents company’s electronic inventory and is different from physical inventory, basis details of physical inventory maintained as baseline with further details of goods purchased and goods sold maintained in company’s electronic inventory).

 

A point of notable difference between perpetual inventory system and periodic inventory system (accounting system where business account their inventory at periodic intervals – first at the end of the period and the count is used to balance general ledger. Next, companies apply balance to beginning of new period) is that cost of goods sold is not present as general ledger account in periodic inventory system, whereas, in case of perpetual inventory system an update is made automatically whenever a product is received or sold.

 

Instead cost of goods sold is represented in periodic inventory system as:

 

cost of beginning inventory + cost of goods purchased (net of any returns or allowances) + freight-in – cost of ending inventory. 

 

The amount thus realized, is matched with the sales amount shared in the income statement. 

 

Under FIFO approach, the cost of a similar goods purchased at lower price in a financial year, are thus registered as cost of goods purchased. The cost of remainder underutilized goods, purchased at higher price, is shared as cost of items in inventory.

 

In Inflationary market place, the FIFO approach of assigning lower, older costs as cost of goods sold, results in higher net income along with larger inventory for the company, in comparision to LIFO approach. However, the FIFO approach may result in higher taxes for the organization, due to wider gaps between costs (underutilized inventory items) and revenues.

 

LIFO “Last In First Out”, approach is an accounting method of disposing assets purchased or acquired last, as first consumable raw material in production, expansion of company infrastructure, or finished product to be sold in market place. 

 

During inflationary economies, LIFO approach results in inventory item sold being assessed a higher cost of goods sold. The net end result is deflated net income costs and lower ending balances in inventory, for the company utilizing LIFO approach, in disposal for raw material and finished goods. Other potential benefit of using LIFO method is lower corporate tax, resulting from expenses rising over time, while following LIFO.

 

Also, LIFO is not permitted under International Financial Reporting Standards. 

 

To balance company accounts, the more expensive inventory items are sold under LIFO approach. The inventory for the more expensive inventory items on the balance sheet, is maintained under FIFO approach. 

 

Average Cost Inventory approach assigns the same cost to each inventory item by calculating the average cost of inventory items as: 

 

the cost of goods in inventory divided by the total number of items available for sale.

 

 The Average Cost Inventory method results in net income for the organization. The method attempts to “bridge gap and end inventory balances”, realized in FIFO and LIFO approach.

 

 

FISH is used to describe inventory that moves extremely slowly. This could be a problem because it suggests that working capital investments in inventory are excessive and that there is also a high danger of obsolete inventory.

 

The phrase is an abbreviation for the inventory cost layering methods known as LIFO (Last In, First Out) as well as FIFO (First In, First Out). When a company has a lot of FISH inventory, there is a considerable chance that some of it may become obsolete and need to be written down. There may be an extra operating capital investment in inventories if there is a lot of FISH.

 

Unexpectedly poor sales and overstocking purchases are only two of the many factors that contribute to FISH inventory. Poor efficiency in this area might also be caused by poor materials management. There may be accounting problems if the same things have been idle in stock for a long time. For instance, degradation or obsolescence may cause the things' worth to be lower than their costs. The business also continues to pay other expenses related to storing inventory, such as rent, insurance, and the cost of capital. Businesses that practice First In, Still Here (FISH) accounting have lower turnover rates than the industry standard. Investors typically stay well away of businesses that are in FISH conditions since they are having excess inventory costs money.

 

The challenges of FISH are as follows.

 

1. It implies that an ample supply of available inventory that might not be sold before it expires.

When it comes to products with lengthy shelf periods and/or low demand, this is frequently the case. Less likely are you to sell a product at full price the longer it remains on your shelf.

 

2. It suggests inadequate material management within the company itself.

If you've had a lot of FISH available, it's likely that you over-ordered supplies or made poor purchasing choices, leaving you with more than you require for your present production levels.

 

3. It implies that sales are or will be lower than anticipated.

Additionally, this implies that future sales might not be as high as anticipated. Therefore, companies will seek to lower their existing stock levels to prevent writing down outdated goods in the future.

 

FISH affect the effectiveness and efficiency of inventory management supply chain operations as whether the company's operational capital account is sufficiently funded or not. You will need to write off part of your inventory as expired or defective when you've had enough on stock and it is not selling rapidly enough. As a result, you may need to substitute these same items with new ones. However, if you continue to spend all of your money on the old inventory that is idle on the shelf, your business may experience serious financial difficulties.

 

Moreover, one of the Six Sigma words used to describe how goods flow through your supply chain is FISH. The principle is based on the idea that by minimizing bottlenecks and lowering inventory costs, you will boost your chances of success if you can keep your goods moving steadily through your supply chain.

 

In conclusion, it is critical for businesses to comprehend this idea since it can have a significant impact on both the inventory management method and the overall performance of the company. Nearly all of an item-based business' success or failure depends on how well it manages its inventory. Companies need to think about the life cycles of their products, the expenses of maintaining the product on hand, as well as the costs of acquiring more when necessary, in order to limit the quantity of FISH inventory.

 

This is a problem for various markets as well as individual businesses. Perishable food items are renowned for being overstocked in the food sector, and this waste has negative financial and environmental effects. Industry-wide, every year, roughly 30percent of food consumed and 45percent of harvested crops are wasted. This corresponds to an annual waste of approximately $160 billion in the US itself. (Source: Food and Agriculture Organization

of the United Nations, 2023)

 

The corporate world is all about keeping a competitive advantage and remaining one step ahead of the competitors. It is crucial to consider FISH inventory in relation of tried-and-true best practices for this reason.

 

Some key benefits of the FISH approach are explained below.

1. Take into account revising the inventory control system.

By doing this, the company can learn if there might be a way to advance up the process of getting products from your warehouse into the hands of customers.

 

2. Consider putting into effect a better LIFO or FIFO policy. As a result, you may be able to reduce the average lifespan of the company’s stock at any particular time.

 

3. Consider ways to improve the supply chain.

Work with several suppliers rather than just one or two, for instance, to ensure that your supply chain is unaffected by any supplier's failure or delivery schedule issues.

 

Customers might not perceive the goods and services as easily available if inventory is too low, which may reduce their likelihood of returning. On the other hand, if the supplies were also excessively high, there might be the need to close down or fire employees because of excessive expenditures. Although there are ideal inventory levels, it is best to make improvements based on the company's unique requirements and indeed the marketplaces in which it compete.

 

When many businesses in numerous industries think about FISH, they immediately think of “JIT - Just In Time” inventories risk and management. But the benefits of having the appropriate inventory are limitless. Using a quality control strategy, identification and correction of errors preamble the results of a company valuable time and money.

 

Inventory management means the process of ordering, storing and utilization of the inventory materials/components/finished products. It assumes minimization of the costs between the inventory setup costs and holding costs and thereby the total inventory costs is minimized.

 

First In, Still Here (FISH) is a term that refers to slow moving inventory. This describes a scenario wherein a company still has inventory on hand that is not being sold due to inattention or obsolescence. This indicates an excessive inventory; risk of obsolete inventory which need to  be written off and excessive working capital investment in inventory.

 

Few are few challenges or drawbacks that is caused due to FISH.

1.     It could lead to excess amount of inventory.

2.     The risk involved is that (a) the product may expire that is go out of date and (b) less likely to be sold at full price. This is typically a case with products that have long shelf lives and/or low in customer demand.

3.     Poor material management. This indicates over-ordering of materials or not having a balanced purchasing decisions not in line with the production rate.

4.     This could indicate that sales are lower than the expected. This indicates a relooking at the customer demand.

5.     Careful planning and analysis of business cycle, future demand analytics based on past sales as well as market trends can help one to avoid FISH, a slow-moving inventory.

First in Still Here (FISH) is a term that refers to excessive and a very slow-moving inventory. The acronym (FISH) is a take-off on the FIFO (First In, First Out) and LIFO (Last In, First Out) acronyms to describe inventory cost layering systems.

The concept of FISH is important to understand as it can indicate whether your business has enough money in its operating capital account or not. If the inventory on hand is too much which is not selling quickly then some of it needs to written off as obsolete or defective and you need to replace it with new items. If this inventory is left unchecked, it can lead to serious financial troubles for your company since cost is involved with old stuff sitting on the shelf.

FISH is one of the Six Sigma terms used to describe the movement of products through our supply chain and this concept relies on the fact that if we are able to keep our product moving at a steady pace through our supply chain, it will increase our chances of success by preventing bottlenecks and reducing inventory costs.

If a business has a large amount of FISH inventory it indicates excessive working capital has been invested due to which it poses a high risk for outdated inventory which needs to be written off.

Industry Examples

1. The food industry is famous for overstocking unpreserved food items and the waste is not only financial but environmental as well. Every year around 30% of food purchased and 45% of crops harvested are wasted industry-wide and this translates to over $160 billion wasted annual in the US alone.

2. Fashion and beauty industries have a disturbing trend with increasing loss figures year over year due to unsold inventory and wasted products

This is not the case with only individual companies that struggle with their inventory, it is to do with entire industries. Businesses that are Item-based are made or broken almost exclusively on the back of their inventory management practices. So to reduce the amount of First in Still Here (FISH) inventory, companies need to consider their products’ life cycles and the costs involved with keeping the product on hand as inventory and also costs associated with ordering more when needed.

Challenges

Some of the causes for Fish Inventory could be due to unexpected low sales, excessive inventory purchases and Poor management of materials.

There are three main challenges why FISH can be harmful problem for many businesses.

1. If there is an excess amount of inventory on hand then there is a possibility the item may not be sold and may go out of date

Products having long shelf lives and/or low demand or sitting on your shelf for long time are less likely to get sold at full price.

2. Poor materials management within the business itself.

Over-ordering materials and/or making mistakes in purchasing decisions leading to have more than what you need for current production levels.

3. Sales are lower than expected—or that they will be.

Due to unexpected low sales in future businesses will want to reduce their current stock levels in order to avoid writing off outdated product later down the line

Best practices - FISH

The world of business is all about staying ahead of the competition and maintaining a competitive advantage. In order to overcome the above challenges, it’s important to think about first in, still here (FISH) inventory in terms of tested and proven below best practices.

1. Consider re-evaluating your inventory management system.

This practice can tell us if there is a way to reduce the amount of time it takes for products to move through our warehouse and into customers’ hands.

2. Try implementing FIFO (first in first out) policy or LIFO (last in first out) policy.

This practice can enable us to minimize the overall age of our inventory at any given time.

3. Look at ways to optimize your supply chain.

This can be done by working with multiple suppliers instead of just one or two so that our product flow isn’t dependent on any one supplier going down or having problems with their delivery schedule.

 

To conclude FISH is an important concept for businesses to understand because it can have a massive impact not only on the inventory management strategy but also the overall success of the business

While there are some good and must read answers (Balaji, Oosman and Keerthi), the best answer has been provided by Suresh Kumar Gupta for also providing some relevant examples of industries were FISH is a problem.