What is a Lot Number?

Lot numbers are unique identifiers that are given to a batch of items united by a particular attribute. They are also known as batch numbers, lot codes, or code numbers. Lot numbers are to be created internally by the manufacturers and not by the suppliers.

Usually, the shared attributes have something to do with location (manufacturer location or processing location) or time (expiration dates, best-by dates, or manufacture dates). For example, lot numbers can indicate shipping time, purchase order time or time of receipt.

Thus, lot numbers are especially useful as well as important in highly regulated industries or verticals in which quality assurance is of the utmost importance. Some examples of the same are:

Pharmaceuticals
Food and Beverage
Cosmetics
Automotive assembly
Electronics
Medical technology

For these types of products, lot numbers simplify the inventory management processes considerably. In fact, sometimes, it is mandated by the law that companies selling in a particular vertical need to include lot numbers.

For example, you are a manufacturer of vitamin C, and today you have produced 1,000 cases of the same. All those cases will have the same production date and share common raw materials like orange flavoring, vitamin C powder, and other ingredients.

As a result, all these 1,000 cases will have the same lot number. With this lot number, you will be able to track all the ingredients or constituent parts as well as the equipment and labor records involved in manufacturing the product.

Thus, as is evident, a lot is a batch of products or finished goods harvested or collected together into a single group. A single lot number identifies the entire batch of goods. All the items in a lot usually have the same production location or date, production issue, expiration date, packaging date, etc., for the purposes of lot traceability.

This means that each lot is managed separately in the inventory. Additionally, while timestamps associated with the lot that enables lot tracking may or may not appear on the packaging, they should be recorded. For example, they can be recorded in the supply chain solution.

Considering that lot numbers are used to track items throughout the manufacturing process, they can be used to identify products with defects or recalled items. This will help you in preventing the following:

Raising costs for replacing, retrieving, reimbursing, or fixing customers for affected goods.
Tarnishing of your business’ reputation.
Negatively affecting your cash flow
Plummeting of your company’s stock prices

Therefore, your brand image, working capital, revenue, and customer loyalty will all be saved from being negatively affected.

How to Identify Lot Numbers?

Usually, lot numbers are found on the packaging of the products. It may be printed as a series of letters and numbers or as a barcode. Usually, there is a label or a stamp that says lot number or batch number. In fact, lot numbers will be in small type, all capital letters, and say “LOT#.”

On several products, lot numbers will be on the back panel. On kit boxes, lot numbers will either be on the top or bottom of the box, generally affixed to a label.

Now, lot numbers have two parts:

A letter - This corresponds to the month the product was manufactured (A: January, B: February, C: March, D: April, E: May, F: June, G: July, H: August, I: September, J: October, K: November, L: December)
Series of Numbers - This follows the letter. In the numbers,

The first number is the third digit of the year the product was made.
The next two numbers represent the day of the month the product was made.
The next number represents the last digit of the year the product was made.
The next two digits represent the month the earliest expiring component expires.
The last two numbers represent the year the earliest expiring component expires.

For example, LOT#B-01580609 means that the product was manufactured on February 15, 2008, and the earliest expiration date for any item in the kit is June 2009.

Where Should You Place the Lot Number on Products?

Often, lot numbers are printed on the label near the barcode or SKU. Alternatively, you might print the lot number on the same label as the SKU or the barcode.

Irrespective of where you decide to place it, placing it on your products is vital as it will help in tracking a product’s manufacturing information, like where and when it was made. In fact, if you send subassemblies or components to a contract manufacturer, they can even use the lot number to track the same information.

However, as a rule of thumb, try and implement a standard practice when placing lot number labels underneath all your products. This will speed up the time taken to locate them.

When Should You Use a Lot Number?

Generally, you should use lot numbers only when required by law or when it is essential for quality control purposes. This is because, for having an accurate inventory management system, having too much data can be as problematic as having too little data. Hence, tracking what is necessary will help you in making informed decisions.

Thus, for example, you are manufacturing pharmaceuticals or other regulated products. In this case, you will require lot numbers to track and trace materials throughout the production process.

However, if, for example, you are selling perishable goods like a food products, then you will need lot numbers to keep track of expiration dates and ensure that your products meet certain quality standards.

Some of the questions that you should answer to help you decide whether you should be implementing lot numbers or not are:

Do you sell products in any of the verticals or industries mentioned above?
Could quality assurance errors potentially harm your customers?
Do you sell products that are prone to recalls?
Do you sell products that utilize raw materials acquired from different vendors?

If you answered yes to any of these questions, you would need to use and track lot numbers. However, if your answer has been a no, then you should dedicate your resources to building a solid inventory management strategy and stick to SKUs and serial numbers.

Therefore, based on your business and your products, you will have to determine whether you should use lot numbers or not. If you are unsure about it, it is better to use it and add it to your inventory management or manufacturing automation system. This is because removing unnecessary data is always easier than adding missing data.

What is the Difference Between Lot Numbers vs. SKUs?

While both of these are used for item identification, tracing, and tracking purposes, they are not the same. An SKU identifies a distinct type of item, which includes attributes that distinguish the item from others. These product attributes may include but are not limited to:

Manufacturer
Description
Material
Size
Options
Version
Packaging
Color
Warranty terms

Thus, when a business or warehouse takes inventory, it typically counts the quantity per product.

In contrast, a lot number can be applied to track any inventory batch at a specific time. In fact, you can even think of lot numbers as SKUs plus the added element of time or location.

For example, you own a wooden toy shop that sells custom-built cars in different colors. Each color variation would have its own SKU (even if the car construction is identical). This means that blue cars, for example, will all share the same SKU.

However, blue cars assembled in January through March may have a different lot number than blue cars assembled in April through June.

What is the Difference Between Lot Numbers vs. Serial Numbers?

While both lot numbers and serial numbers can be used to identify and track products, they are not the same. This is because while many items can have the exact same lot number, each serial number will be unique to a single product. This is like all the siblings in the family will have the same last name but different first names.

For example, a batch of laptops may all have the same lot indicating a finished manufacturing or shipping date. Each laptop will, however, have its own unique serial number. Finally, all laptops can be assigned a product code that might identify all laptops of the same model, color, and make.

Here thus, the main distinguishing characteristic of a lot is the element of time. While every lot number is unique, they are also united, i.e., batched with others in the same location or time period. In fact, lot numbers are often combined with serial numbers to create unique codes.

What is Lot Control?

Lot control refers to the concept that pieces of inventory can always be traced back to their warehouse and group of origin. The term “lot” means the inventory group or batch that was manufactured under the same conditions.

You can then use this grouping to keep track of your inventory. Hence, if anything happens, like a recall, you will know how to trace and track the items in question. This will help encourage returning customers while keeping your expenses in check.

Most commonly, lots are controlled by being issued a certain number to help with tracking. Once you have recorded the number, you can track information like when you received the certain product, who scanned them in, in which warehouse it is stored, when it will be shipped to customers, etc.

In fact, by using an inventory management system, you can also receive an alert and be able to pull the food, medicines, etc., once it is no longer fresh or once it has crossed its use-by date. This will lead to happier customers, improved customer retention, and higher net profits in the long run.

Lot number and lot control are extremely important, especially if you have a larger inventory, a wider distribution radius, and higher demand. In these circumstances, it will help you have complete control over your products, from the moment they are delivered to the warehouse to when they reach your customers or specific stores. Lot control will thus help in end-to-end traceability.

How to Track Lot Inventory?

After you have decided that you need lot numbers, it is time to understand how to implement them. While generating and tracking lot numbers is possible with manual processes, it is going to be a serious challenge.

Thus, if you want effective and efficient lot tracking in place, you will need to invest in an inventory management platform that automates most of these manual tasks. Lot tracking can be a fairly simple process once you have the correct base ready for it.

This means that first, you will need to set up a reliable infrastructure for tracking and storing your data. This might also include setting up a system for tagging and identification and creating a process for regularly recording data. Once you have these things in place, tracking your inventory should be fairly straightforward.

Some of the tips to help you not only get started with lot tracking but also be able to do that effectively are:

Set up a system for tagging and identification - This will make keeping track of your inventory easier. The system will also ensure that your data is accurate.
Create a process for regularly recording data - This will help you stay on top of your inventory levels and ensure that you are always aware of what is in stock and what needs to be restocked.
Use a tool like a barcode scanner or RFID tags to automate your data collection - This will save you lots of time and energy. Additionally, it will also ensure accuracy in your data collection.
Implement regular checks and audits - The benefit of this will be that you will be able to catch any discrepancies or errors in your data at the earliest, thereby ensuring that no extra pressure is put on your working capital.
Stay organized and concise in your data recording - The advantage of this practice will be that it will make it easier to track your inventory over time. Additionally, it will also help you spot trends or issues more efficiently. This will assist in your business planning and implementation.

The steps to track lot inventory are as follows:

Step 1: Decide on Your Batching Criteria

This involves answering this question-

Will you group your products by their processing date? Creation date? Location?

If you are unsure which batching criteria you should opt for, then you should first do research on other businesses in your industry or vertical. You can then borrow the best practices from them.

Step 2: Create Barcodes and Labels with Affiliated Lot Numbers

Once you have established lot numbers, you will need to find a way to link them physically to products in the warehouse so that your employees can scan them. This is where the role of barcodes and labels comes in.

There are several software platforms that will allow you to associate multiple pieces of data with a barcode, including a serial number. The benefit of this will be that it will help avoid clutter on the labels while keeping all important metrics tied to one scannable code.

Step 3: Scan Your Lot Numbers Upon Receipt and Distribution of Products

As soon as the product enters the warehouse, it must get its unique barcode and label. Then the product needs to be scanned in and shelved until it is moved or purchased. Its barcode, as well as scanning, will ensure that you always have real-time updates about your inventory.

This insight will help in planning for your future demands and satisfying your customers' present demands. It will also help you be prepared in case of changing preferences of your buyer personas.

Step 4: Monitor Batch Activity Through Lot Number Reporting

If you need to do a supplier audit or when a crisis occurs, running reports by lot number is simpler, more organized, less time-consuming, and less prone to human errors. This is because this reporting will most likely be automated and will allow you true end-to-end visibility into your materials and products.

4 Best Practices in Lot Number Tracking

If you want to get the full benefits of lot tracking, some of the best practices that you should implement in your inventory management are:

Lot Adherence

Lot adherence means that you should keep track of your inventory by lot number and not just by stock-keeping unit.

To do so, lot batch numbers should be visible on the packaging as a scannable barcode or both. This should be in such a format that the inventory systems should be able to read them. Lastly, you should incorporate this data into your overall inventory management strategy.

Fulfillment by Lot

When orders are processed, fulfillment at the lot level is vital to keep your inventory data up to date. This includes but is not limited to correctly identifying and matching inventory items to be fulfilled from the correct lot.

The benefit of following this methodology is that it ensures that things like best-by dates or expiry dates are followed, and necessary actions are taken. A software that helps with inventory management and manufacturing management will be able to automate this process.

First In, First Out Strategy

First In, First Out (FIFO) means that the items you receive first get shipped out first. This strategy is especially useful for products with a use-by date. Additionally, it also helps in preventing an item from becoming obsolete or out of fashion over time.

This strategy is applicable to warehouse management and accounting, where it can be used for inventory valuation. Implementation of this strategy will lead to your inventory valuations being more accurate, which will lead to your financial statement being accurate.

These insights will also let you make your sales and marketing strategies accordingly, ultimately improving your financial KPIs and business metrics.

Lot number tracking is a must for implementing this strategy successfully.

Quick Expiration Date Strategy

Another advantage of implementing lot number tracking is that it will help you identify items that:

Have a short on-shelf life
Are about to expire soon

For instance, considering that such products are going to expire soon might lead to a decrease in accounts receivable as against account payable, you might resort to strategies like offering discounts so that they are sold before they become a loss for you. This will help maximize your net revenue while improving your operational metrics.

9 Benefits of Lot Number Tracking

Considering that lot numbers and lot tracking will help you trace and track your entire inventory, it is no surprise that its implementation will have many benefits for your business. Some of these are:

It will help your business keep track of when raw materials are received and when and where they will be used. This will help in more easily identifying when your items need to be restocked.
It will help your business keep track of where your inventory is coming from. This information will help in easily identifying which of your suppliers might be experiencing quality issues.
It will help your business with quality control by allowing you to identify which batch of products might be defective.

Lot number tracking, however, has a wide range of benefits, and understanding them will help you decide whether you should implement it. The nine benefits of lot number tracking are:

Ensure Product Quality

With lot number tracking and the end-to-end traceability ensured through it, you would be able to easily ensure that your product quality is maintained at each step. If there has been a lapse in the same, the information stored through lot numbers will help identify its root cause, therefore enabling you to solve it.

This will reduce risks to public safety, keep your customers happy, and keep your cash flow in a healthy state.

This is because your business would not have to spend extra for corrective measures, and at the same time, you would be able to keep your cost of goods sold in check. Simultaneously, a good quality product will be purchased by your customers, thereby ensuring high gross profits.

Track Down Problem Sources

With the implementation of lot numbers and lot number tracking, you would be able to determine if and why many order returns have come from the same place.

This is because the lot number will keep track of your product from the moment it comes to the warehouse, including the raw materials it is made of, till the retailers or customers that it has gone to.

This end-to-end traceability and transparency will be a huge help in tracking down problem sources. For example, one of your suppliers is delivering products of lower quality.

Quickly tracking down problem sources will enable quick resolution of the same, which will help keep your operating income higher than your operating expenses.

Map Out Inventory Trends

Considering that lot number tracking helps you trace and keep track of your inventory, it will also be able to give you insights into your inventory trends. This will help you identify which of your products are in higher demand and which ones are not.

It will also help you determine your future demands and prepare yourself for them. With these insights, you would be able to make the necessary adjustments to procurement, purchasing, and warehousing layout plans.

In fact, this will even help you have a more efficient shop floor schedule as well as a resource capacity plan.

Respond Rapidly to Recalls

With the inventory tracking from the start till the very end that is being provided by lot number tracking, you would be able to respond rapidly to recalls.

This is because you would have all the data needed to identify the affected batch of products and, consequently, the one that needs to be recalled.

With this information at hand, you would then be able to identify the suppliers where its raw materials came from or the customers to whom your products have been sold.

This will enable you to take quick corrective actions, which will keep your customers happy while ensuring the regulators that you are protecting your customers.

A long-term effect of the same would be that it will lead to positive brand awareness and strengthening of your goodwill.

Remain Compliant with Regulations

Depending on the country that your business is based in, as well as selling to, there would be a set of regulations and standards that you would need to comply with in order to be on the right side of the law.

For instance, in the USA, the Food and Drug Administration (FDA) and the International Organization of Standards (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 in the USA.

Lot number tracking will ensure that you are able to ensure that you comply with regulations at each step of the way. This, in turn, will help you in keeping your customers happy, as well as in increasing your profits. It will also help you avoid extra expenses in the form of penalties for non-compliance.

Minimize Warehouse Waste

With lot number tracking, you would have detailed reports on each of your products and their expiration dates.

Thus, by using lot number tracking, and inventory management software or ERP software, or an MRP will help you optimize your inventory movement by shipping items closer to expiration first (FEFO).

This will help in keeping your business expenses in check and your financial statements like income statements and profit and loss statements healthy.

Eliminate Human Error

With automated lot tracking, you would be able to easily eliminate lot management errors. Additionally, everything will get archived, which will make it easier to access data. This, in turn, will improve your business operations' overall efficiency and productivity.

Understanding Cost in Relation to Time

Another benefit of lot number tracking is that it provides more accurate cost insights. This is because with lot number tracking, which also tracks the time period as well as the location, inflationary and seasonal fluctuations can be detected easily, thereby helping in cost and other analyses.

Make Better Decisions About your Products and Production Processes

With all the insights that will be provided with lot number tracking, you will have a better understanding of your business, production processes, as well as your customers. This will help you avoid making poor decisions that can lead to inferior products and damage your company’s reputation.

It will also help you in making the right decisions for your production processes, including shop floor planning, such that your costs will be reduced, and your productivity and profitability will be increased.

Lastly, the right decisions will also ensure that your employees are not exposed to dangerous materials or working conditions and that you can assist them in managing their workplace stress.

Improve Communication Between Different Departments within Your Company

This is one of the most important benefits of lot number tracking, considering that communication is the key to success in any organization. With the transparency and traceability provided by lot number tracking, different departments within your company will be able to work together more efficiently and effectively.

It will help in resolving disagreements and preventing misunderstandings. This will lead to a reduction in your manufacturing lead times, which in turn will only be more beneficial to you.

Additionally, strong communication between different departments will help in building morale and create a more positive work environment. This will help you in retaining top talents at your workplace.

Lastly, good communication will help in improving overall decision-making. All of this will lead to better business operations and products, higher customer satisfaction, and higher net income and net profit ratio.

How will a Lot Number Tracking Software Help?

A lot number tracking software will make it easy to implement the best practices of lot number tracking, which will improve your overall accuracy, productivity, and profitability. It will also enable you to get more out of your lot number tracking.

For example, your warehouse may choose either a periodic inventory system or a perpetual inventory system.

If it chooses a periodic inventory system, then inventory counts will be made at defined intervals, the ease of which will be increased due to lot numbers.

In contrast, if it chooses a perpetual inventory system where the inventory counts are maintained in real-time, the ease and accuracy of the same will be increased with the implementation of a lot number tracking software.

In today’s highly competitive and dynamic markets, real-time tracking of inventory has more significant benefits, especially because it helps in clearing out stocks before their inventories expire or the trends change, developing strategies for increasing sales, and leading to high profits for your company.

Additionally, lot tracking software will also help in the following:

Minimizing material handling
Streamlining warehouse operations
Maximizing warehouse spaces
Minimizing equipment maintenance and damage
Increasing the accuracy of inventory management
Increasing the accuracy of inventory’s accounting valuation
Ensuring resources are allocated and used efficiently
Increasing the overall profitability and productivity of your company

How can Deskera Help You with Lot Number Tracking?

As a business owner, it is crucial that you stay on top of your manufacturing processes and resource management.

You must manage production cycles, resource allocations, and much more to achieve this.

Deskera MRP is the one tool that lets you do all of the above. With Deskera, you can:

Track raw materials and finished goods inventory
Manage production plans and routings
Maintain bill of materials
Optimize resource allocations
Generate detailed reports
Create custom dashboards

And a lot more.

It is also possible to export information and data on Deskera MRP from other systems. Additionally, Deskera MRP will give you analytics and insights to help you make decisions.

So go ahead and book a demo for Deskera MRP today!

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Key Takeaways

A lot number is an identification number assigned to a particular quantity or lot of material from a single manufacturer. These materials should share the same specifications and production date.

If your business is engaged in perishable or warranty-based products, and you are part of a highly-regulated industry, then lot numbers are for you. Some examples of the same are:

Pharmaceuticals
Food and Beverage
Cosmetics
Automotive assembly
Electronics
Medical technology

Lot numbers and lot number tracking will be your boon because they will ensure more efficient inventory management, better compliance, improved accounting metrics, and end-to-end traceability throughout your business. The benefits of implementing lot number tracking are:

Ensures product quality
Tracks down problem sources
Maps out inventory trends
Enables rapid response to recalls
Ensures compliance with regulations
Minimizes warehouse waste
Eliminates human error
Understanding cost in relation to time
Helps in making better decisions about your products and production processes
Improves communication between different departments within your company

For the automation, accuracy, streamlining, and integration of data provided through lot number tracking software, Deskera MRP is one of the best in the market, especially because it will let you customize its functionality according to your business.