FIFO (First In, First Out) means the oldest inventory is used or sold first. The case of tomatoes delivered on Monday should be used before the case delivered on Wednesday. The principle applies to any inventory with a shelf life — food, beverages, cleaning supplies, perishable materials.
In practice, FIFO requires labeling every item with its receipt date and organizing storage so that older items are in front (or on top) and newer items go behind (or beneath). When a new delivery arrives, it goes to the back; existing stock moves forward. This is simple but requires daily discipline — the natural tendency is to grab whatever is most accessible, which is usually the newest delivery.
FIFO failure is one of the largest sources of preventable waste in food businesses. A case of chicken buried behind newer deliveries expires unused. A container of sauce pushed to the back of the walk-in grows mold. The cost appears as inventory variance — actual food cost exceeds theoretical food cost because ingredients were purchased but never sold.
FIFO also has an accounting meaning: when calculating the cost of goods sold, FIFO assumes the first units purchased are the first units sold. If you bought flour at 0.55/lb in February, FIFO values the flour used in February at $0.50/lb (the older, cheaper purchase). See Food Costing and Waste Reduction.