Batch Tracking Benefits, Strategies & Implementation

Business reputations are made and lost on two fundamentals: product quality and customer service. Even when a customer receives a defective product, the business gets a second chance to earn their delight by rapidly replacing the faulty product in a smooth and seamless process. Batch tracking, an approach to inventory management, plays a crucial role in 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 and monitor the history of a group of items with similar properties as those items make their way through production and distribution channels, all the way to customers. Should quality issues arise, batch tracking helps identify the source of the problem and locate other items that share it. Batch tracking also contributes to the ability to smoothly and efficiently recall defective or potentially hazardous items. And in its most ubiquitous use, batch tracking helps food suppliers manage their sales from inventory on the basis of expiration dates, minimizing food waste and improving suppliers' profits.

This article explains batch tracking processes and their importance, including the many benefits awaiting companies that incorporate batch tracking in their supply chain and inventory management processes.

What Is Batch Tracking?

Also known as lot tracking, batch tracking is a practice used in inventory management to group items with similar production characteristics, like expiration dates, manufacturing date and location, and specific parts or raw materials used (and their supply chain sources). Batch tracking improves inventory accuracy, provides faster tracking of specific batches or items even after they're sold, and supports various delivery sequencing 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 to assume that the items in inventory weren't individually produced. Batch tracking keeps that in mind and is a step up from basic stock tracking.

In basic stock tracking, all of the same product or material available in inventory is aggregated, with each item receiving a stock keeping unit (SKU) number for individual tracking. Batch tracking gathers together items with similar properties — like the sources of parts used or manufacturing dates and locations — within the larger group of products. That batching makes it easier to track defective products or products simultaneously approaching their expiry date, for example. Products still get a SKU number, 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. That information is traceable through the batch number, and with good recordkeeping can be accessed even when the product is in a customer's possession. When products are registered by their owners, batch information, combined with registration information, can greatly 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 inventory management challenges lies in the value of the information it delivers, in the form of the ability to track the component sources and manufacturing characteristics of products in a business's inventory, along with the subsequent distribution of the finished products.

To illustrate that information value, suppose a customer receives a defective item and contacts the company, requesting an exchange or refund. With batch tracking, it's easy to know where that product was sourced or manufactured and what materials were used to produce 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 before they reach other customers. Further, businesses can analyze all such exchange/refund requests to determine return rates on specific batches; if they find a bad batch, further analysis can identify the source of the problem, preventing more faulty products from being manufactured.

Customer support also benefits from batch tracking, as the information about an item's lot may help representatives answer customers' questions. Knowing a product comes from an inadequate batch also speeds up return/refund processes, making the experience less stressful for both the customer and the business.

Batch tracking is especially important for businesses that sell perishable items, due to its support 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 inventory operations can benefit from it. For compliance and safety purposes, though, batch tracking is indispensable for some industries, including:

• Food and beverage.

  Even nonperishable food items like canned goods or other shelf-stable foods have an expiration date. While some can still be safe for consumption, they shouldn't be sold after their “best by” date. Perishable items like dairy or fresh meats, fruits and vegetables fall under stricter rules, and the food industry relies on batch tracking to ensure customer safety. Similar to the food industry, beverage manufacturers and distributors track batches of their products to monitor expiration dates or pull contaminated batches from the market.

  For example, in mid-2021, an outbreak of Listeria monocytogenes forced nearly 9 million pounds of chicken to be traced and recalled. Thanks to batch tracking, the U.S. Department of Agriculture's Food Safety and Inspection Service (FSIS) was able to cross-check information collected from sick individuals with recorded data from the batches of cooked chicken. FSIS identified the exact lots to pull from the market, as well as the facilities in which they were produced. That saved additional customers from potential harm and helped the company get back into compliance faster, so it could return to selling safe chicken.

• Health and wellness.

  Medicine, personal protective equipment (PPE), cosmetic products, supplements and wellness gadgets all have a set of compliance rules they must follow. All color additives 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 before individual items reach the customer and helps to more quickly trace potentially harmful products in case there's need for a recall. In 2018, a company voluntarily recalled more than five lots of a cleansing foam after the FDA determined, through batch tracking, which batches were contaminated with Burkholderia 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 the manufacturing of a product, such as paint pigments and natural rubber. Batch tracking 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 limit its shelf-life to about two years.

The thorough traceability of products unlocked by batch tracking is useful for most industries that produce or distribute manufactured goods. Safety and quality control are usually the main concerns. In electronics, batches with defective batteries may need to be recalled. Parts in a specific batch of vehicles may need to be replaced to avoid pulling the vehicle off the market. Batch tracking allows a company to proactively trace and pull potentially risky products from the market and to alert any customers who bought items from an 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 raw materials to post-sales, they unlock an array of benefits. Among them:

• Safety and compliance.

  Batch tracking is central to monitoring inventory for quality control and safety because, when problems are found, all items in a related lot can be pinpointed quickly and efficiently.

• Expiration date tracking.

  Expiration date data is used in delivery sequencing strategies, as well as for marketing and promotions. Batch tracking makes it easier to assign an expiration date for a whole lot, instead of individual items, and then track the stock that's expiring soon so that, for example, promotions can be launched to accelerate sales.

• Automated inventory sequencing.

  With batch tracking, businesses can set up automated inventory-sequencing strategies like FIFO or FEFO. This maximizes the value of inventory by minimizing potential waste.

• Smoother recall processes.

  While no one wants to pull products off the market, doing so before bigger issues arise is essential to long-term customer satisfaction. When the need for a recall emerges, batch tracking software can help a business more quickly send appropriate messages to its supply chain and affected customers.

• Improved product quality.

  When you know which materials went into a superior batch of products, you can keep ordering from the best suppliers and stay away from those supplying inadequate materials. That results in better quality products overall, improving customer satisfaction and boosting revenue.

• Better supply chain.

  The same ability to identify superior batches that leads to improved product quality can also improve your supply chain. Batch tracking helps business owners identify and transact more business with the best and most cost-efficient vendors.

• Cost reduction.

  Batch tracking supports better-informed decisions that can save money. Simply knowing the best time to sell a batch of products based on their shelf life avoids stock aging beyond its sellable date. Likewise, knowing when to recall products avoids replacement shipping fees and potential legal costs.

• Fewer accounting mistakes.

  Automated processes made possible by batch tracking software reduce accounting mistakes or misinterpretation of data. Improved visibility makes it easier to monitor the location of all items in a batch to determine whether they're still in inventory, in transit or already sold.

Inventory Batch Tracking Strategies

Also known as delivery or fulfillment sequencing, FIFO, LIFO and FEFO are the most common inventory management strategies enabled by batch tracking. This means that, by monitoring a batch's shelf life and expiry date, businesses can establish automated sequencing to move their inventory.

FIFO:

With the first in, first out approach, the oldest inventory is always sold first. Useful for companies 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 no products 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 most recently produced or acquired items first. But this last in, first out strategy is rarely used, and usually only when there's no way — or no easy way — to access older items without moving the new product first. Think: stackable items like boxed goods or construction blocks; products sold in bulk and stored in piles like sand; or products stored in cellars or containers accessible only from one side. It's important to note that while LIFO can be used in the U.S., it is banned under International Financial Reporting Standards (IFRS).

FEFO:

For products with a clear expiration date, some companies use FEFO, or first expiring, first out. Regardless of when they were produced or acquired, products with the expiration date closest to purchase date are sold, consumed or otherwise disposed of first. FEFO is preferred over FIFO for perishable goods like fresh fruit, meats and dairy products. Of note, 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 to preempt that of a batch produced earlier. For example, suppose a hummus maker used older chickpeas in a batch made this week but used much fresher ingredients in last week's batch. 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, the hummus with the shorter shelf life would end up sitting longer in storage and potentially age past its sellable date.

While these are the most widely known batch-inventory sequencing strategies, there are others that bring additional factors into consideration. Some companies, for example, prefer first expiry, minimum available lifetime (FEMAL), which moves products based on expiration date, like FEFO, but for products with similar expirations it chooses those with the shortest remaining useful life first, as long as that remaining useful life is greater than a calculated minimum “margin of expiration.” For its part, FESAL — first expiry, shortest ambient lifetime — considers changes in temperature that can shorten a product's remaining useful life. Products also can be sequenced via a lowest in, first out (LOFO) strategy, or according to highest in, first out (HIFO). LOFO and HIFO take price fluctuations into consideration.

These alternate strategies are rarely used, however, and only in extremely limited circumstances. The usual rule of thumb is to use FIFO for fast-moving products, FEFO for perishables 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 in inventory— a batch number is assigned to all products that come from the same manufacturer on the same date, made with the same materials. So, if an issue arises with an item, a business can use the item’s batch number to investigate the source of the problem and, if necessary, pull the entire batch off the market.

Aside from the need to be unique, there really aren't any other firm rules for determining batch numbers. Businesses can incorporate as much or as little information as they deem appropriate. Here are some key considerations for assigning batch numbers:

1. Assign a number: The only way a business can trace a specific batch accurately is by assigning a unique number to each batch. The main requirement when setting up batch numbers is to make sure there are no duplicate numbers and that the code can be understood by all relevant people within the company.

2. Include manufacturing date: If important, dates can be incorporated into batch numbers so workers can identify how old a product is just by glancing at the code.

3. Consider expiration dates: If appropriate, expiration dates can also be coded into batch numbers.

4. Consider other characteristics: Additional information, like materials used or color, can also be embedded in the batch number.

5. Keep a detailed description: For each unique batch number, your inventory management system should maintain a record of all appropriate information about the suppliers, materials and locations related to each batch. This is what creates end-to-end traceability.

To illustrate these five considerations, here's how the hypothetical Keuka Lake Hummus Company (KLHC) assigns batch numbers. KLHC starts each batch number with a two-digit prefix identifying 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 digits that represent the year, Julian calendar date the batch was made, and which batch of the day it was from. Julian dates are used for batch numbers because they don't require any letters. So, the batch code for the fourth batch of traditional-flavored hummus made on October 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 into making each batch and stores that record according to batch number. And because the company stamps a separate "best by" date on each container, it doesn't incorporate expiration 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 them to some extent, inventory and supply chain management software greatly streamlines the process, saving time and decreasing the possibility of human error. NetSuite Inventory Management Systems Software automates inventory tracking and enhances the traceability of all products with lot and serial tracing. With NetSuite's inventory software, businesses can back- and forward-trace inventory from suppliers and raw materials to post-sales, as well as track the quantity and cost of each batch for transparency and tax purposes. It also simplifies SKU management by defining a merchandise hierarchy and automatically applying updates made to parent items to all subitems in the same lot. It also lets a business define the best inventory-sequencing strategies for its products, boosting profitability 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 offers benefits for most organizations. Batch tracking brings increased visibility and precision to inventory management, boosts safety and quality control, and provides the means to manage different inventory-sequencing strategies — like FIFO, LIFO and FEFO — that help companies avoid losing stock that becomes too old for sale. Indirectly, batch tracking can also help a company maintain or improve customer satisfaction and even raise product quality. Although manual batch tracking is possible, good inventory management software is needed for businesses to reap most of these benefits.

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 monitor items 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 the ability to trace the "genealogy" of a product — including the raw materials used to produce it, the equipment it was manufactured on, the results of quality inspections and its serial number — as well as the product's progress through distribution channels, from manufacturing to customer sale, using batch numbers. Its main objectives are quality 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 similar production characteristics. They are used to track defective products to investigate the source of a problem, simplify recall processes and improve inventory movement efficiency through fulfillment sequence strategies.

How do you track a serial number?

Inventory management systems allow complete visibility and tracking of serialized inventory items 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 used to track all items that share similar characteristics of production (time, date, location, materials used, etc.).