What are Lot Numbers? Understand Every Benefit and Know How to Use Them

What are Lot Numbers? Understand Every Benefit and Know How to Use Them

what is a lot number

In the world of inventory management, success comes from accurate and meticulous tracking. 

You can’t fix what you can’t measure, and we’ve developed some very helpful metrics to accurately measure the inflow and outflow of products.

We’ve got internal identifiers like the Stock Keeping Unit (SKU) which help us keep track of the same type of product throughout our warehousing operations. 

We’ve got external metrics like the Universal Product Code (UPC), a numerical identifier given by the manufacturer for consistency across all vendors.

And, of course, we’ve got the classic serial number, a code designated to each individual unit of a given product type. 

But you’ll notice none of these metrics include a measure of time. And when we’re selling perishable goods and highly regulated items, tracking time is a big deal.

These codes also can’t track location — the specific place where a product was manufactured, produced, or processed.

To solve these problems, we must look to another metric — the lot number. 

What is a Lot Number?

Lot numbers — also known as batch numbers, code numbers, or lot codes — are unique identifiers given to a batch of items united by a particular attribute. 

Usually, the attributes have something to do with time (expiration dates, best-by dates, or manufacture dates) or location (manufacturer location or processing location).

Lot numbers are especially useful in highly regulated verticals or industries in which quality assurance is of the utmost importance. Such as:

  • Food & Beverage
  • Pharmaceuticals
  • Cosmetics
  • Electronics
  • Automotive assembly
  • Medical technology

Lot numbers go a long way in simplifying the inventory management process for these types of products. Some laws even require any company selling in a particular vertical to include lot numbers.

Also note: lot numbers are not given by suppliers, but must be created internally by the business leaders.

Where Can I Find the Lot Number on Products?

Most of the time, lot numbers are associated with many other important metrics in the form of a barcode. Other times, lot numbers can often be found near or around the SKU or serial number, usually printed on the same label as the barcode.

Smartphones are a ubiquitous example of a product that uses lot numbers. Every Apple iPhone contains a unique serial number. Within this serial number are certain characters that signify the week, month, year, and particular manufacturing plant associated with the unit. 

This single code serves as both a serial number (one-of-a-kind identifier) and a lot number (location and time-based identifier). It’s worth mentioning that many companies follow this example and combine their serial and lot numbers for convenience. 

Another example of this is your car’s Vehicle Identification Number (VIN), which is simply your vehicle’s serial number combined with its lot number. 

To be clear, not all serial numbers include lot numbers, but many of them do. 

Other goods and products that use lot numbers include:

  • Hygiene and beauty products
  • Vitamins and supplements
  • Household cleaning products
  • All consumer electronics (smartphones, tablets, computers)
  • Insecticides and other aerosol sprays
  • Baby products
  • Fireworks
  • Building materials
  • Paints and dyes

What are the Benefits of Lot Tracking?

Inventory management is complex enough. Why introduce another metric to worry about? What benefits do lot numbers afford business owners?

Lot numbers are a lot like insurance. When you need it, you’re really glad you have it. In other words, lot numbers work the best when things go wrong.

Here are some of the main benefits of implementing and tracking lot numbers:

Effective Recalls

Let’s say you own a small eCommerce shop that specializes in gourmet candy. You order raw ingredients from suppliers and process the candy in-house with your trademark secret recipe. Everything is going swimmingly until you get an alert from your corn syrup supplier that their latest shipment was part of a spoiled batch.

The problem is that you’ve already processed and shipped several boxes of candy to distributors since then. You don’t know off the top of your head which boxes contained the spoiled corn syrup, so what do you do?

SKUs and serial numbers can’t help you, but lot numbers can. Lot numbers, especially in food and beverage, are most often associated with expiration or processing dates (and sometimes processing location). 

If you’re using lot numbers, this supplier can send you the processing date of the bad batch. Then, if you’ve been tracking your lot numbers in your inventory management software, you can run a report to see which products are associated with that date and thus, contain the spoiled material. 

From there, you may need to make a few tough phone calls to your distributors, but you’ve just saved your entire company from bad PR, sick customers, and potential lawsuits.

Better FIFO Facilitation and Less Waste

FIFO is the gold standard for both eliminating waste and maintaining the most accurate accounting books.

Milk, for example, is a product that benefits from lot numbers for this very reason. Often, milk is processed and sent in batches grouped by expiration date. These groups are assigned lot numbers, allowing complete supply chain tracking from the utter to the store shelves.

This also empowers the grocer to more intelligently facilitate FIFO, as they can use lot numbers to identify the milk jugs closest to expiration and sell those units first.

Compliance With Regulations

Small flaws in pharmaceutical manufacturing, automotive material construction, or medical devices can be the difference between life and death. In these industries, quality assurance takes on a new level of weightiness. 

This is why lawmakers haven’t left it up to corporations to dictate safety. Many laws exist — specifically in pharmaceuticals and food and beverage — that require corporations to use lot numbers for all the aforementioned reasons.

If you’re selling products in or adjacent to these industries, you’ll want to consult with a lawyer to ensure you’re abiding by all the requisite tracking laws. 

End-to-end Supply Chain Visibility

If you’re selling products that require lots of assemblies, kitting, and production, you’re probably working with lots of raw materials. More often than not, these materials aren’t all from the same supplier. 

Another benefit of lot numbers is end-to-end visibility on the entire inventory cycle from raw material to end-user sale. 

For example, say you own a cosmetic brand. You notice an influx of returns on a particular makeup product. All of these unhappy customers claim that the product is ineffective or doesn’t work as advertised.

Running a report on the lot number reveals that many of the returned products came from one particular supplier.

You’ve had past issues with this particular vendor, and now you have data to back up your hunch. From there, you can take steps to remove or alleviate the problematic sources, thus minimizing returns and increasing customer satisfaction.

Lot Number vs. Serial Number vs. SKU

We’ve talked a bit about some of the differences between lot numbers, serial numbers, and SKUs, but this topic deserves a bit more of our time.

Distinguishing between these three and understanding the use cases for each will save you a lot of time and confusion in your inventory management.

Lot Number vs. Serial Number

An easy way to understand the distinction between lot numbers and serial numbers is to think of them as phone numbers vs. social security numbers.

A serial number is a unique code assigned to every single unit of a given product type. That means if five people purchase a laptop with the same SKU (more on that soon), there will be five distinct serial numbers.

Serial numbers are useful for tracking warranties and registering products with the manufacturer. This is why jugs of milk don’t have serial numbers — nobody is registering their gallon of skim milk online for an extended warranty. 

This is a bit like a social security number. Every U.S. citizen has a unique code assigned to them.

A lot number, on the other hand, is more like a phone number. For example, in Central Florida, the area code is “407.” Every person with a registered Central Florida phone has a unique number dedicated just to them (much like a serial number). 

However, they’re also united — aka, batched — with others in the geographical region by their area code.

Lot numbers are often combined with serial numbers to create unique codes, like the iPhone and VIN example mentioned above.

We’ll get into when you should use a serial number vs. a lot number in the following section.

Lot Number vs. SKU

A Store Keeping Unit, or SKU, is an internal identifier assigned by a business to a particular product or product type. 

For example, if I owned a wooden toy shop that sold custom-built cars in different colors, each color variation would have its own SKU (even if the car construction is identical).

You can think of lot numbers as SKUs plus the added element of time or location, as mentioned in the previous sections. 

Going back to the wooden toy example, it’s understood that blue cars would 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. 

When Should I Use a Lot Number?

The astute among you may be thinking: why not use a lot number? It seems like it can only be beneficial, right?

Well, if you don’t need to use a lot number, it’s actually best to eliminate it. As much as possible, we want to reduce the noise and unnecessary data fatigue in our inventory management processes. We want to track only what we need to track — nothing more and nothing less. 

For many eCommerce brands, lot numbers may be a total waste of time. Here are some questions to ponder if you’re on the fence about implementing lot numbers. 

  • Do you sell products in any of the verticals 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’ve answered “yes” to any of those questions, you need to utilize and track lot numbers. If not, dedicate your resources to building out a solid inventory management strategy and stick to  SKUs and serial numbers. 

How to Track Lot Inventory

Once you’ve discerned whether lot numbers are for you, it’s time to get down to the details of how to implement them.

While generating and tracking lot numbers is possible with manual processes, it’s going to be a serious challenge. If you want your lot tracking to be effective and not a time-sucking black hole, invest in an inventory management platform that automates much of these manual tasks.

That said, tracking lot inventory is fairly straightforward once you’ve set up a reliable infrastructure. Here’s how it works:

Step 1: Decide on Your Batching Criteria

Will you group your products by their creation date? Processing date? Location? If you’re unsure, just do a bit of research on other businesses in your vertical. Don’t be afraid to borrow best practices here. 

Step 2: Create Barcodes and Labels With Affiliated Lot Numbers

Once we’ve established lot numbers, we need a way to physically link them to products so warehouse employees can scan them. This is where barcodes and labels come in. Many software platforms allow you to associate multiple pieces of data with a barcode, including a serial number. 

This simplifies clutter on the label and keeps 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 be affixed with a unique barcode and label, scanned in, and shelved until it’s moved or purchased.

Step 4: Monitor Batch Activity Through Lot Number Reporting

When a crisis occurs or you need to do a supplier audit, running reports by lot number is simple. As mentioned above, this reporting is what allows true end-to-end visibility into your materials and products. 

How Does Inventory Management Software Help With Lot Tracking?

We can illustrate the power of inventory management software by going through the above steps with the archetypal business example: a lemonade stand.

In this case, I suppose it’s more of a lemonade factory, but the logic still works.

Since lemonade is a consumable product, our first step would be to batch each of our raw materials by process date. Doing so eliminates waste and helps us create and sell our lemonade according to a FIFO strategy.

We’ll keep it simple and say we’re getting our materials from a single vendor. That way, we don’t need to worry about tracking location in our lot number.

Once we’ve decided on our batching criteria, we’ll then need to generate barcodes and labels with that information. 

There are many “hacky” solutions to creating your own barcodes online, but they don’t integrate with a “single source of truth” like an inventory database. This is where inventory management software really shines.

Platforms like SkuVault help you create SKUs, serial numbers, and lot numbers for your products. Not only that, but thanks to the SkuVault Lots feature, you can even create a lot number that includes expiration dates and supplier information.

This data can then be associated with a single barcode, making it a cinch to print, label, and scan in materials upon receipt.

As we receive your lemons, sugar, and high-quality alkaline water, we can label and scan in each unit. Each shipment of lemons, for example, will then have its own lot number batched by the expiration date.

As we use the raw materials to create our lemonade, we’d electronically debit individual components (water, sugar, and lemons) to the creation of the final product — a jug of our refreshing beverage. Then, as workers pick and pack the finished products, they scan a barcode that contains a new lot number. 

This way, we’re not only tracking which components are associated with our final products, but we can track our outgoing products in batches, as well. 

Thus, the end-to-end sales cycle is fully trackable, all the way from raw materials to the first sip of the end-user.

We can now run reports on our lot numbers that pull up all associated raw materials and products. This makes dealing with product recalls, distribution issues, or problematic vendors simple and data-driven. 

Next Steps

Lot numbers aren’t for everyone. But those who need them live and die by them. Leaving this up manual entry introduces a whole host of human errors that most organizations can’t afford to risk.

So whether you’re selling consumable goods and you need a lot tracking strategy or you’re embarking on some other eCommerce journey, we’d love to show you how SkuVault can help your profitability and efficiency.

Reach out to schedule a demo with one of our team members today. 

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