What does it mean to rotate stock?

To rotate stock means to arrange the oldest units in inventory so they are sold before the newer units. For example, a grocery store will restock its shelves by putting the oldest units in the front part of the shelves. The newest units will be placed in the back of the shelves. The hope is that the customer will select the most convenient (older) units from the front of the shelf.

It is important to rotate stock in all areas: retail display area, warehouse, factory, etc. The reason to rotate stock is to reduce the losses from deterioration and obsolescence.

Ideally, when a company rotates its stock the units are physically flowing first-in, first-out (FIFO). However, in the accounting for the cost of inventory and the cost of the goods sold, the company may use a cost flow assumption which is different from the flow of the physical units. For example, a U.S. company may use the last-in, first-out (LIFO) cost flow assumption even though it diligently rotates its stock of goods.