FIFO batch pricing: why your material costs are wrong without it
Average pricing hides losing projects. First-in-first-out batch costing is the only way to know what a specific site actually consumed — here is how it works on a real construction project.
If your accountant values consumed cement at "average cost across all deliveries this year," you have an accounting convenience, not a project control tool. On a site that bought 200 tons of cement in three deliveries at 920,000, 975,000, and 1,100,000 so'm per ton, the average ignores the fact that a specific month burned through the expensive batch. FIFO — first-in, first-out — tracks which batch was actually consumed, so each month's cost reflects reality. This matters most on projects where prices moved during the build.
What FIFO actually is, in warehouse terms
A batch is a single delivery receipt: 50 tons of M400 cement from supplier X on March 3 at 920,000 so'm/ton. When the prorab requests 10 tons on March 8, the system deducts those 10 tons from the oldest available batch — March 3 — at 920,000. If March 3 runs out mid-consumption, the system splits the request: part from the March 3 batch, part from the next oldest. Every line item on the SMETA therefore carries the actual unit cost of the cement that went into it, not the fiction of a portfolio average.
Why the average lies on long projects
Construction materials in Uzbekistan move 10–25% per year on cement, rebar, and imported finishes. A project that starts in February and finishes in November spans two or three price waves. Average costing smears the expensive waves across the cheap early months, making the first foundation sections look more expensive than they were and the finishing work look cheaper. When the final accounting runs, the total is right but every section's profitability is wrong — and bids on the next project start from a misleading baseline.
The three places FIFO changes behavior
First, director reports: per-section SMETA variance becomes honest. A foundation section that came in on budget stays on budget in the report, instead of looking like it overran because later cement was expensive. Second, bid pricing: when estimating the next project, you use actual per-section consumption cost for the exact months the work will happen, not a 12-month smoothed number. Third, supplier negotiations: you can show a supplier exactly which batch cost what, so a discount negotiation stops being an argument about averages.
What breaks without it
Without FIFO, three decisions go wrong. You congratulate the wrong prorab for hitting budget (he had cheap cement). You penalize the right one for missing budget (he inherited expensive cement). And you bid the next project 5–8% below what it will actually cost, because your baseline number is smoothed across a year that no longer exists.
How to roll it out
FIFO does not require new software if your warehouse log distinguishes deliveries. Mark every delivery with a batch number and a unit cost. Consumption entries reference the batch. Run the numbers for one finished project the old way and the FIFO way — the gap, section by section, is your education on why average costing quietly costs money.
Batch pricing is not advanced accounting. It is basic honesty about which delivery paid for which wall.