Business reputations are made and lost on two fundamentals: product quality and customerservice. Even when a customer receives a defective product, the business gets a secondchance to earn their delight by rapidly replacing the faulty product in a smooth andseamless process. Batch tracking, an approach to inventory management, plays a crucial rolein this scenario because of its impact on both product quality and customer service.
Batch tracking is an inventory management practice through which businesses can trace andmonitor the history of a group of items with similar properties as those items make theirway through production and distribution channels, all the way to customers. Should qualityissues arise, batch tracking helps identify the source of the problem and locate other itemsthat share it. Batch tracking also contributes to the ability to smoothly and efficientlyrecall defective or potentially hazardous items. And in its most ubiquitous use, batchtracking helps food suppliers manage their sales from inventory on the basis of expirationdates, minimizing food waste and improving suppliers' profits.
This article explains batch tracking processes and their importance, including the manybenefits awaiting companies that incorporate batch tracking in their supply chain andinventory management processes.
What Is Batch Tracking?
Also known as lot tracking, batch tracking is a practice used in inventorymanagement to group items with similar production characteristics, like expirationdates, manufacturing date and location, and specific parts or raw materials used (and theirsupply chain sources). Batch tracking improves inventory accuracy, provides faster trackingof specific batches or items even after they're sold, and supports various deliverysequencing strategies — such as first in, first out (FIFO), last in, first out (LIFO)and first expiring, first out (FEFO) — among other capabilities.
Batch Tracking Explained
Unless we're talking about small businesses with handmade products, it's fair toassume that the items in inventoryweren't individually produced. Batch tracking keeps that in mind and is a step up frombasic stock tracking.
In basic stock tracking, all of the same product or material available in inventory isaggregated, with each item receiving a stock keeping unit (SKU) numberfor individual tracking. Batch tracking gathers together items with similar properties— like the sources of parts used or manufacturing dates and locations — withinthe larger group of products. That batching makes it easier to track defective products orproducts simultaneously approaching their expiry date, for example. Products still get a SKUnumber, but also a lot or batch number.
When batch tracking is used, businesses can log precise details about their sellable items:materials used, assembly location, date products were received, expiration date, etc. Thatinformation is traceable through the batch number, and with good recordkeeping can beaccessed even when the product is in a customer's possession. When products areregistered by their owners, batch information, combined with registration information, cangreatly simplify communications if defects or recalls arise down the road.
Why Is Batch Tracking Important to Businesses?
The importance of batch tracking and how it solves inventorymanagement challenges lies in the value of the information it delivers, in the formof the ability to track the component sources and manufacturing characteristics of productsin a business's inventory, along with the subsequent distribution of the finishedproducts.
To illustrate that information value, suppose a customer receives a defective item andcontacts the company, requesting an exchange or refund. With batch tracking, it's easyto know where that product was sourced or manufactured and what materials were used toproduce it. The remaining products from the same batch can be checked for quality control,and the company can then remove any defective or expired products from circulation beforethey reach other customers. Further, businesses can analyze all such exchange/refundrequests to determine return rates on specific batches; if they find a bad batch, furtheranalysis can identify the source of the problem, preventing more faulty products from beingmanufactured.
Customer support also benefits from batch tracking, as the information about an item'slot may help representatives answer customers' questions. Knowing a product comes froman inadequate batch also speeds up return/refund processes, making the experience lessstressful for both the customer and the business.
Batch tracking is especially important for businesses that sell perishable items, due to itssupport for multiple inventory-sequencing strategies, the most popular of which are FIFO,LIFO and FEFO.
Who Needs to Use Batch Tracking?
Batch tracking is not a requirement for all businesses, though most manufacturing,distribution and retail inventoryoperations can benefit from it. For compliance and safety purposes, though, batchtracking is indispensable for some industries, including:
Food and beverage.
Even nonperishable food items like canned goods or other shelf-stable foods have anexpiration date. While some can still be safe for consumption, they shouldn'tbe sold after their “best by” date. Perishable items like dairy or freshmeats,fruits and vegetables fall under stricter rules, and the food industry relies onbatch tracking to ensure customer safety. Similar to the food industry, beveragemanufacturers and distributors track batches of their products to monitor expirationdates or pull contaminated batches from the market.
For example, in mid-2021, an outbreak of Listeria monocytogenes forced nearly9 million pounds of chicken to be traced and recalled. Thanks to batch tracking, theU.S. Department of Agriculture's Food Safety and Inspection Service (FSIS) wasable to cross-check information collected from sick individuals with recorded datafrom the batches of cooked chicken. FSIS identified the exact lots to pull from themarket, as well as the facilities in which they were produced. That saved additionalcustomers from potential harm and helped the company get back into compliancefaster, so it could return to selling safe chicken.
Health and wellness.
Medicine, personal protective equipment (PPE), cosmetic products, supplements andwellness gadgets all have a set of compliance rules they must follow. All coloradditives on cosmetics need to be approved by the U.S. Food and Drug Administration(FDA), for example. Batch tracking ensures the compliance of each batch beforeindividual items reach the customer and helps to more quickly trace potentiallyharmful products in case there's need for a recall. In 2018, a companyvoluntarily recalled more than five lots of a cleansing foam after the FDAdetermined, through batch tracking, which batches were contaminated withBurkholderia cepacia complex, which can cause serious respiratory illness.
Organic material–derived products.
An expiration date is usually required if an organic raw material was used in themanufacturing of a product, such as paint pigments and natural rubber. Batchtracking is used to monitor expiration dates and prevent the sale of aging stock.Oil-based paint, for example, contains high levels of organic compounds that limitit* shelf-life to about two years.
The thorough traceability of products unlocked by batch tracking is useful for mostindustries that produce or distribute manufactured goods. Safety and quality control areusually the main concerns. In electronics, batches with defective batteries may need to berecalled. Parts in a specific batch of vehicles may need to be replaced to avoid pulling thevehicle off the market. Batch tracking allows a company to proactively trace and pullpotentially risky products from the market and to alert any customers who bought items froman inadequate lot.
Benefits of Batch Tracking
The main benefits of batch tracking come from the end-to-end traceability it makes possible.When businesses monitor the quality and shelf life of their products all the way from rawmaterials to post-sales, they unlock an array ofbenefits. Among them:
Safety and compliance.
Batch tracking is central to monitoring inventory for quality control and safetybecause, when problems are found, all items in a related lot can be pinpointedquickly and efficiently.
Expiration date tracking.
Expiration date data is used in delivery sequencing strategies, as well as formarketing and promotions. Batch tracking makes it easier to assign an expirationdate for a whole lot, instead of individual items, and then track the stockthat's expiring soon so that, for example, promotions can be launched toaccelerate sales.
Automated inventory sequencing.
With batch tracking, businesses can set up automated inventory-sequencing strategieslike FIFO or FEFO. This maximizes the value of inventory by minimizing potentialwaste.
Smoother recall processes.
While no one wants to pull products off the market, doing so before bigger issuesarise is essential to long-term customer satisfaction. When the need for a recallemerges, batch tracking software can help a business more quickly send appropriatemessages to its supply chain and affected customers.
Improved product quality.
When you know which materials went into a superior batch of products, you can keepordering from the best suppliers and stay away from those supplying inadequatematerials. That results in better quality products overall, improving customersatisfaction and boosting revenue.
Better supply chain.
The same ability to identify superior batches that leads to improved product qualitycan also improve your supply chain. Batch tracking helps business owners identifyand transact more business with the best and most cost-efficient vendors.
Cost reduction.
Batch tracking supports better-informed decisions that can save money. Simply knowingthe best time to sell a batch of products based on their shelf life avoids stockaging beyond its sellable date. Likewise, knowing when to recall products avoidsreplacement shipping fees and potential legal costs.
Fewer accounting mistakes.
Automated processes made possible by batch tracking software reduce accountingmistakes or misinterpretation of data. Improved visibility makes it easier tomonitor the location of all items in a batch to determine whether they're stillin inventory, in transit or already sold.
Inventory Batch Tracking Strategies
Also known as delivery or fulfillment sequencing, FIFO, LIFO and FEFO are the most commoninventory management strategies enabled by batch tracking. This means that, by monitoring abatch's shelf life and expiry date, businesses can establish automated sequencing tomove their inventory.
FIFO:
With the first in, first out approach, the oldest inventory is always sold first. Useful forcompanies that sell fast-moving and/or food products, this strategy is the best known— and usually a business's default method of stock control. FIFO ensures that noproducts sit in inventory for too long, regardless of their shelf life or expiration date.
LIFO:
When products don't have a natural expiration date, it's possible to move the mostrecently produced or acquired items first. But this last in, first out strategy is rarelyused, and usually only when there's no way — or no easy way — to accessolder items without moving the new product first. Think: stackable items like boxed goods orconstruction blocks; products sold in bulk and stored in piles like sand; or products storedin cellars or containers accessible only from one side. It's important to note thatwhile LIFO can be used in the U.S., it is banned under International Financial ReportingStandards (IFRS).
FEFO:
For products with a clear expiration date, some companies use FEFO, or first expiring, firstout. Regardless of when they were produced or acquired, products with the expiration dateclosest to purchase date are sold, consumed or otherwise disposed of first. FEFO ispreferred over FIFO for perishable goods like fresh fruit, meats and dairy products. Ofnote, production date and expiration date don't always go hand-in-hand —freshness of ingredients, for example, may cause the expiration date of a second batch topreempt that of a batch produced earlier. For example, suppose a hummus maker used olderchickpeas in a batch made this week but used much fresher ingredients in last week'sbatch. That would mean that this week's batch may require an earlier expiration date,even though it was produced later. In this case, if FIFO were used instead of FEFO, thehummus with the shorter shelf life would end up sitting longer in storage and potentiallyage past its sellable date.
While these are the most widely known batch-inventory sequencing strategies, there are othersthat bring additional factors into consideration. Some companies, for example, prefer firstexpiry, minimum available lifetime (FEMAL), which moves products based on expiration date,like FEFO, but for products with similar expirations it chooses those with the shortestremaining useful life first, as long as that remaining useful life is greater than acalculated minimum “margin of expiration.” For its part, FESAL — firstexpiry,shortest ambient lifetime — considers changes in temperature that can shorten aproduct's remaining useful life. Products also can be sequenced via a lowest in, firstout (LOFO) strategy, or according to highest in, first out (HIFO). LOFO and HIFO take pricefluctuations into consideration.
These alternate strategies are rarely used, however, and only in extremely limitedcirc*mstances. The usual rule of thumb is to use FIFO for fast-moving products, FEFO forperishables and LIFO when storage structure doesn't allow access to older products.
How to Set Up Batch Numbers
Batch (or lot) numbers are unique codes used to identify a collection of specific products.Not to be confused with a SKU — which identifies individual products ininventory— abatch number is assigned to all products that come from the same manufacturer on the samedate, made with the same materials. So, if an issue arises with an item, a business can usethe item’s batch number to investigate the source of the problem and, if necessary,pull theentire batch off the market.
Aside from the need to be unique, there really aren't any other firm rules fordetermining batch numbers. Businesses can incorporate as much or as little information asthey deem appropriate. Here are some key considerations for assigning batch numbers:
Assign a number: The only way a business can trace a specific batchaccurately is by assigning a unique number to each batch. The main requirement whensetting up batch numbers is to make sure there are no duplicate numbers and that thecode can be understood by all relevant people within the company.
Include manufacturing date: If important, dates can be incorporatedinto batch numbers so workers can identify how old a product is just by glancing atthe code.
Consider expiration dates: If appropriate, expiration dates can alsobe coded into batch numbers.
Consider other characteristics: Additional information, likematerials used or color, can also be embedded in the batch number.
Keep a detailed description: For each unique batch number, yourinventory management system should maintain a record of all appropriate informationabout the suppliers, materials and locations related to each batch. This is whatcreates end-to-end traceability.
To illustrate these five considerations, here's how the hypothetical Keuka Lake HummusCompany (KLHC) assigns batch numbers. KLHC starts each batch number with a two-digit prefixidentifying the batch's flavor: 01 for traditional, 02 for lemon garlic, 03 for beet …all the way to 36 for buffalo wing–flavored hummus. Then there are seven more digitsthatrepresent the year, Julian calendar date the batch was made, and which batch of the day itwas from. Julian dates are used for batch numbers because they don't require anyletters. So, the batch code for the fourth batch of traditional-flavored hummus made onOctober 20, 2021, would be 01-2129304; the first batch of beet hummus made on June 10, 2022,would be coded as 03-2216101.
Separately, KLHC keeps a detailed record of the lot numbers for all ingredients that go intomaking each batch and stores that record according to batch number. And because the companystamps a separate "best by" date on each container, it doesn't incorporateexpiration dates in its batch numbers.
Batch Tracking Made Simple With Inventory Management Systems
While it's possible for small businesses to manually assign batch numbers and track themto some extent, inventory and supply chain management software greatly streamlines theprocess, saving time and decreasing the possibility of human error. NetSuite InventoryManagement Systems Software automates inventory tracking and enhances thetraceability of all products with lot and serial tracing. With NetSuite's inventorysoftware, businesses can back- and forward-trace inventory from suppliers and raw materialsto post-sales, as well as track the quantity and cost of each batch for transparency and taxpurposes. It also simplifies SKU management by defining a merchandise hierarchy andautomatically applying updates made to parent items to all subitems in the same lot. It alsolets a business define the best inventory-sequencing strategies for its products, boostingprofitability by ensuring that inventory is used in the most efficient way.
Conclusion
While it's a legal requirement for only a handful of industries, batch tracking offersbenefits for most organizations. Batch tracking brings increased visibility and precision toinventory management, boosts safety and quality control, and provides the means to managedifferent inventory-sequencing strategies — like FIFO, LIFO and FEFO — that helpcompanies avoid losing stock that becomes too old for sale. Indirectly, batch tracking canalso help a company maintain or improve customer satisfaction and even raise productquality. Although manual batch tracking is possible, good inventory management software isneeded for businesses to reap most of these benefits.
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Batch Tracking FAQs
How do I track a batch number?
Batch numbers are easily traceable with inventory management software. Using lot numbers,inventory management systems let you back-trace, forward-trace and continuously monitoritems from manufacturing to sale, according to their specific batch.
What is batch traceability?
Batch traceability is an important part of inventory management. Batch traceability is theability to trace the "genealogy" of a product — including the raw materialsused to produce it, the equipment it was manufactured on, the results of quality inspectionsand its serial number — as well as the product's progress through distributionchannels, from manufacturing to customer sale, using batch numbers. Its main objectives arequality control and safety compliance.
What is a batch number used for?
Batch numbers are used to identify and monitor a batch or lot of products that share similarproduction characteristics. They are used to track defective products to investigate thesource of a problem, simplify recall processes and improve inventory movement efficiencythrough fulfillment sequence strategies.
How do you track a serial number?
Inventory management systems allow complete visibility and tracking of serialized inventoryitems throughout the entire supply chain process.
What is the batch number of a product?
The batch number of a product is the number or code assigned to it in inventory. It is usedto track all items that share similar characteristics of production (time, date, location,materials used, etc.).
