A lot is a batch of products or goods produced, harvested, or collected together into a single group. The entire batch of goods is identified by a single lot number. Every item in the lot carries the same lot, and each lot is managed separately in the inventory. All the items in a lot usually have the same production date, production issue, packaging date, or expiration date.
A lot number can be created based on a specific date and time. For example, lot numbers can indicate a purchase order time, shipping time, or time of receipt.
The time stamp associated with the lot allows for the management of perishable items, medical supplies, or anything else with a limited shelf life. While time stamps may or may not appear on the packaging, they should be recorded somewhere, such as in a warehouse management system (WMS).
In this article we’ll take an in-depth look at lot numbers, lot batch tracking, and how they can be used to improve your inventory management.
- What goods and products use lot numbers?
- Why is lot tracking used?
- How are lot numbers used?
- What is the difference between lot no vs. SKUs?
- What’s the difference between lot batch number vs. serial numbers?
- What are the benefits of lot tracking?
- Lot number tracking best practices
- How does inventory management software help?
What goods and products use lot numbers?
Lot numbers are frequently associated with:
- Foods, including fresh and packaged foods
- Medications, vitamins, supplements
- Hygiene products (toothpaste, shampoo, etc.)
- Fire extinguishers
- Household cleaning products and detergents
- Smartphones, computers, electronics
- Medical supplies
- Aerosol sprays
- Insecticides, pest control products
- Toys and baby products
- Building materials
- Fabric, paints, dyes, etc.
Why is lot tracking used?
In some sectors, such as the medical supply and pharmaceutical industry, the use of lot batch tracking is required by regulatory agencies. This could facilitate any recall made due to food safety issues. In other cases, lots are used to streamline warehouse efficiency, and inventory management.
It keeps track of sell-by dates and enable detailed reporting of on-shelf life. Plus, lot tracking makes first-in-first-out (FIFO) accounting easier.
How are lot numbers used?
They are used to track a group of items throughout the entire supply chain, end-to-end. For example, in the auto industry, a lot batch number could identify a batch of red paint used to paint a group of automobiles. Plus, a specific shipment of spark plugs might all carry the same number.
If the need for a parts recall appears, the lot batch can quickly identify which cars are carrying the recalled part. Recalled parts can occur in any kind of manufacturing, and this could be related to safety or performance issues. For food or medical products, contamination or errors in production might be the reason for recall.
What is the difference between lot no vs. SKUs?
Both are used for item identification, tracking, and tracing purposes. However, an SKU identifies a distinct type of item which includes attributes that distinguish the item from others. Product attributes might include the manufacturer, description, material, size, options, version, color, packaging, and warranty terms. Typically, when a warehouse or business takes inventory, it counts the quantity per product.
Using a hand scanner or similar barcoding technology, product codes are retailer-specific codes that can be used to calculate stock and identify items on an ecommerce store. Meanwhile, a lot can be applied to track any inventory batch at a specific time.
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What’s the difference between lot batch number vs. serial numbers?
Both lot batch numbers and serial numbers can be used to identify and track products. However, many items can have the exact same lot no, but each SN is unique to a single product. It’s like all the siblings in a family may have the same last name, but everyone has a different first name.
We can use laptop computers as an example to show how these identification numbers differ. A batch of laptops may all have the same lot indicating a finished manufacturing or shipping date. Next, each laptop has its own unique serial number. Finally, laptops can be assigned a product code that might identify all laptops of the same color, model, and make.
The main distinguishing characteristic of a lot is the element of time.
What are the benefits of lot tracking?
Lot tracking has several important advantages. With lot tracking you can:
- Track down problem sources – Lot numbers can help companies determine if and why many order returns come from the same place. For example, one particular supplier may be delivering products of lower quality.
- Map out inventory trends – Certain products might be in higher demand than others at certain times. Lot batch tracking software can provide data insight to make adjustments to purchasing and warehousing plans.
- Respond rapidly to recalls – The ability to respond to a recall includes generating a list of affected products, customers, and suppliers. Regulators require a quick response to protect consumers.
- Remain compliant with regulations – The Food and Drug Administration (FDA) and the International Organization of Standardization (ISO) enforce specific regulations and certification requirements related to inventory management. ISO certification increases brand trust and opens the door to other business opportunities. Meanwhile, the Drug Supply Chain Security Act (DSCSA) requires pharmacies to maintain and keep track of drug lot information.
- Minimize warehouse waste – Especially for items with best-before dates, lot batch analysis can help optimize inventory movement by shipping items closer to expiration first (FEFO).
- Eliminate human error – With automated lot tracking, lot management errors can be essentially eliminated. Plus, everything gets archived for easy data access.
- Understanding cost in relation to time – Lot number tracking provides more accurate cost insight. Inflationary and seasonal fluctuations can be detected since lots correspond to a specific date.
Lot number tracking best practices
To get the full benefit of lot tracking, here are some best practices to implement in your inventory management.
This means keeping track of inventory by lot no, not just by stock keeping unit. Lot batch numbers should be visible on the packaging, as a scannable barcode, or both. Inventory systems should be able to read lot barcodes. Incorporate this data into your overall inventory management strategy.
Fulfillment by lot
When orders are processed, fulfillment at the lot level is important to keep inventory data up to date. This includes correctly identifying and matching inventory items to be fulfilled from the correct lot. This methodology makes sure things like best-by dates are respected. Order Fulfillment software or services can automate this process.
First In, First Out strategy
First In, First Out (FIFO) means the items you receive first get shipped out first. This is especially important for products with a use-by date. Plus, the chances of an item becoming obsolete or out of fashion increase with time. This applies to both warehouse management and accounting where it can be used in inventory valuation. When inventory valuation methods are improved, your financial statements are more accurate. Lot number tracking is essential for successful this methodology.
Quick expiration date strategy
Lot tracking helps identify items that have a short on-shelf life or that are about to expire soon. Since you want to ship these items as soon as possible, you may offer discounts on items close to becoming expired.
How does inventory management software help?
All of the lot tracking methods mentioned so far can be facilitated by inventory management software. This not only improves inventory accuracy, but it also enables you to get more out of your lot number tracking.
For instance, your warehouse may choose from periodic or cycle inventory counting. The periodic approach means that inventory counts are made at defined intervals. Meanwhile, the cycled approach occurs continuously in real time.
As you can imagine, depending on the product, real time counting offers significant advantages especially for items with sell-by dates. However, a cycle counting approach requires specialized software to work. In this manner, lot tracking is highly accurate and can improve your accounting valuation accuracy as well.
How does lot tracking fit in with overall inventory management?
If you consider lot tracking supported methodologies, plus smart warehousing practices, other inventory management benefits become apparent, such as:
- Minimizes stock handling: Once workers load pallets, for example, they don’t touch them again until unloading. This reduces employee work and equipment use since items don’t need to be continuously re-arranged.
- Streamlines warehouse operations: When lots are properly tracked, operations can be automated and optimized for better resource management. For instance, pick and pack strategy can help improve efficiency.
- Maximize warehouse space: Pallet flow rack systems allow warehouse managers to pack goods more densely to free up warehouse space. Accurate lot numbering assists in this process.
- Minimize equipment maintenance & damage: Forklifts are used less frequently with pallet flow rack systems. This cuts down on warehouse equipment wear and tear.
Lot number tracking makes a huge difference
Whether its inventory management efficiency, better compliance, or improved accounting metrics, streamlined and accurate lot number tracking is an essential part of any business that manages inventory. When you follow the best practices and utilize effective lot tracking tools, your operations get a significant upgrade to improve business outcomes.
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Written by Erhan Musaoglu
Erhan Musaoglu is the CEO and Co-Founder of Logiwa.