What is a Lot Number? A Complete Guide

Lot numbers play a significant role in inventory tracking. There are many ways in which making use of lot numbers can benefit your business. In this article, we aim to provide a comprehensive overview, starting with the most pressing question: what is a lot number? 

We’ll also discuss:

• Lot numbers vs. serial numbers vs. SKUs
• Why are lot numbers important for businesses?
• How to create a lot number
• How to use lot numbers
• What are the benefits of lot tracking?

What is a lot number?

A lot number is a unique identifier assigned to a group of products or materials manufactured or processed together under the same conditions. 

Lot numbers allow businesses to track batches of products that are produced together. They ensure traceability: if a product is recalled, the rest of the items in that batch can easily be identified due to them sharing the same lot number. 

Product recall is much more manageable with the use of lot numbers. These items can be quickly isolated and taken out of circulation or removed from the lineup without impacting other inventory.

Related, lot numbers enable better quality control. Businesses can track exactly which products have issues, are receiving customer complaints or generally aren’t selling well. This allows for fast action.

Lot number vs. serial number vs. SKU

These identifiers can be easy to mix up, but we’re here to clarify. 

Lot numbers

As discussed, lot numbers are used to identify a batch of products manufactured under the same conditions. 

When to use lot numbers: 

• When recall, quality control and legal compliance are of utmost importance to the business.
• Lot numbers are commonly used in industries that distribute regulated products, perishables or other items that require quality control and tracking. 
• Examples: pharmaceuticals, cosmetics and food.  

Serial numbers 

A serial number is a unique identifier for individual products or units, and no two serial numbers are the same. 

When to use serial numbers: 

• When individual items need to be tracked.
• Serial numbers are often used for high-value items or for complex products such as services or warranty tracking. 
• Examples: vehicles, electronics, appliances or machinery. 

SKU (stock keeping unit)

A SKU is a code used by retailers to identify specific products or variations of products for inventory purposes.

When to use SKUs:

• For internally categorizing inventory in order to track the quantity and location of units for sale. 
• When products need to be differentiated by characteristics including size, color, model. Etc. 

Examples: any business that manages multiple versions of a product.

Why are lot numbers important for businesses? 

There are a few reasons why lot numbers are important for businesses. 

Traceability

With lot numbers, businesses can track and trace products from end-to-end–from the start of the supply chain to when the product is on the shelf. Businesses can use lots to track when products shipped, when they were manufactured, who received the products and more. Plus, it goes even further to tracking the producer of raw materials involved, date and location of production, etc. 

Traceability is extra important for businesses that must abide by legal mandates and compliance laws, such as food and pharmaceuticals. If a recall is required, businesses can quickly take every product with that lot number off the shelf. 

Compliance

Lot numbers play a significant role in compliance. Regulatory requirements in the industries we mentioned above, for example–pharmaceuticals and food–are enforced by various regulatory bodies. That includes the FDA (Food and Drug Administration) and the EMA (European Medicines Agency). 

These bodies mandate strict traceability, quality control, detailed records, supply chain accountability and more. Businesses have to provide this information and ensure it is up-to-date at all times in order to prevent recall disasters, for one thing. That’s why lot numbers are so important–they ensure traceability at all times. 

Quality control 

Effective quality control can help prevent recalls. Lot numbers give businesses insight into the quality of batches. Ultimately, this helps them to identify consistency and quality issues. Many industries that are required to use lots carry out batch testing to ensure these products are up to standard before they are circulated. 

Suppliers are also often part of quality control evaluations, which may reduce the likelihood of defects, contamination and other common issues that lead to recalls. Lot numbers help businesses isolate affected batches, ensuring that other inventory isn’t impacted or lost as a result. This also helps maintain customer trust and confidence. Businesses must ensure they document all quality control measures, with lot information included. 

How to create a lot number

1. Choose a format for your lot number

The format you use should contain meaningful information such as: 

• Batch number: a unique number assigned to a batch of products
• Date of production: helps trace product manufacturing
• Location code: helps you identify where it came from 
• Product/category code: to distinguish between different product lines
• Supplier code: especially useful if you have several different suppliers

Example lot number formats:

• Location-YYYYMMDD-Batch#
• Supplier-YYYYMMDD-Batch#
• Batch#-YYYYMMDD-Product

As you can likely tell in the above examples, the lot number doesn’t have to include all the information we’ve listed. As long as you have a system in place that works for you, any combination of information–or anything else you deem relevant–is fine to use. 

2. Choose which information to include

Your lot numbers are dependent on your unique business needs, as well as your industry. That’s why you may choose to use a combination of different elements, based on factors such as:

• Expiration dates: these are highly useful for food and pharmaceuticals, and may be legally required as well, depending on your jurisdiction. 
• Lot size: this is the number of units that were produced or manufactured together. Use distinct batch numbers if the items were manufactured in distinct lots. 
• Supplier information: this will allow you to easily identify the supplier from which the items originated. 

3. Use a consistent format

Now that you know what kind of information you should include, it’s time to decide on a consistent format. Establish a uniform process to generate lot numbers. Doing so will prevent confusion and duplication while ensuring your lots are organized. The formats could be styled as follows:

• Data-based formats: these numbers use dates as the main identifier
• Sequential formats: simple formats that don’t use a date 
• Combination formats: a mix of several elements 

4. Start automating your lot numbers

You’ll save yourself a lot of time by using an inventory management system that provides automatic tracking and built-in tools for generation of lot numbers. With this, you can guarantee that the numbers are unique–no duplication of data. 

5. Ensure proper recordkeeping

Earlier, we discussed how many industries are legally required to provide detailed records of lot number and batch information. Keep an organized record of relevant lot information, including date manufactured, materials used, location, etc. Automating these administrative processes lets you avoid issues that occur as a result of natural human errors. 

6. Apply lot numbers to products

Comply with regulatory requirements to properly label products with lots. These numbers should be clearly marked on each item. This process may be done through barcodes, printed labels, QR codes, or as part of the manufacturing process by the supplier. As always, keep digital records. 

How to use lot numbers

Lot numbers should be integrated into inventory management systems. Here’s how this is achieved:

• Use an inventory management system that enables you to generate, store and track lot numbers automatically. Each batch should be logged in the system with all relevant details. 
• We also mentioned earlier that automating lot number generation can save you a lot of time, especially if you configure your inventory system to do this.
• With all lot numbers logged, the system should link back to all the data you need for traceability purposes.

When it comes to labeling, remember to: 

• Use standardized labeling practices across facilities and suppliers. This ensures identification and traceability. 
• Ensure several points of labeling. Include the lot number on the external packaging, on containers and in digital records throughout the supply chain. 

Scenarios where lot numbers are crucial 

Product recalls: Lot numbers minimize the impact on unaffected products because they allow for targeted recall. 

Inventory audits: Since lot numbers allow specific batches to be tracked throughout the supply chain–from production to warehousing to sales–stock counts can be easily verified. 

Supply chain management: Lot numbers allow product origins to be easily traced, improving supply chain visibility. Not only does this reduce risks, but it improves supplier accountability.

What are the benefits of lot tracking?

We’ve touched on this throughout, but we really want to hammer home the benefits of lot tracking. Let’s go over them one more time. 

Quality assurance

Businesses can maintain product quality with lot tracking. This is because defects can be linked to specific batches, facilitating targeted recalls. Lot numbers minimize disruption and costs due to quality issues. That means only the affected products are removed from circulation. Not only that, but lot tracking can help businesses identify recurring issues. Ultimately, this results in better monitoring of production processes and the subsequent ability to make improvements. 

Compliance

Having a traceable history of each batch produced is key for adhering to industry regulations. Plus, detailed and accurate records streamline the process for regulatory audits, ensuring nothing is missed. As well, lot tracking minimizes the risks of fines and penalties associated with non-compliance because products meet the required standards.

Efficiency

Lot tracking facilitates first-in, first-out inventory management, ensuring that older products are used first. This is especially important for perishable products and pharmaceuticals. Additionally, production planning is streamlined. With insights into batch performance, businesses can make revenue-boosting decisions and allocate resources more accurately. Inventory management as a whole is streamlined because lot tracking enables efficient and accurate stock counts.

Related: A how-to guide on the retail inventory method.

Lot numbers can do a lot for your business

Lot numbers are an important part of inventory management for many businesses. They help keep you compliant, increase efficiency, improve quality assurance and more.

If your business uses lot numbers and needs a streamlined inventory management system, consider talking to a Lightspeed expert today.