Better Inventory Management
through Lot Tracking

Why the laws and regulations surrounding consumer protection and health issues necessitate ever speedier, precise and efficient lot tracking (batch tracking)

A whitepaper discussing the benefits of Lot Tracking

By Monique Taza
Blue Link Associates Ltd.
11/15/2009

Executive Summary

Simple, effective daily tracking of a product (by batch or lot) is a business necessity, which is especially true for food and pharmaceutical distributors where high quality control is critical – but equally important for any distributor. Why is this so?

1. Compliance with global and trade regulations, consumer protection legislation or agricultural bioterrorism laws make it imperative for distributors to have complete, accurate inventory tracking.
2. Efficient and timely tracing of an item’s origins and buyers during a product recall can make – or break – a company. Effective lot tracking software can be the ultimate tool in providing this necessary information with minimal downtime.

Many distributors fail to effectively track products because of the extra time and expense necessitated by manual record keeping. In addition to the probability of human error, these records are physically cumbersome, needing maintenance and storage space. An automated lot tracking system not only tracks items throughout the distribution chain, but also provides cost tracking and basic Return Material Authorization (RMA) – all error-free, with minimal space and maintenance requirements.

The benefits quickly outweigh initial software costs, and can be summarized as follows:

1. automated tracking increases an item’s profit as it reduces or eliminates costs associated with manual tracking
2. accurate costing is achieved by tracing the various ingredients as they move through the warehouse from raw to finished goods
3. efficient, accurate tracking at each phase of the process results in significantly reduced final costs

Recent food poisoning incidents make it imperative to focus our attention on the need to trace problem bulk ingredients – often considered difficult to track as they are stored in quantities. However, well-designed lot tracking software allows the assignment of a signature number (internal lot number) to each lot of material as it comes in with a second number cross-referenced to the supplier’s code (external lot number). The material is tracked as it moves through the warehouse, to production and into finished goods down to the customer. The information tracked can consist of a few basic elements or complex details including dates, weights and origin. Automated lot tracking also traces forward the final finished goods through the distribution chain, from the sales order through to the customer.

Basically, tracking software should allow storage, access and retrieval of all relevant information in an easy, efficient and cost-effective way.

With the tools and procedures offered by tracking software, lot tracking is no longer a costly, inefficient burden.

This white paper focuses on the importance of accurate, efficient, cost-effective product/lot tracking.

Table of Contents

1. Executive Summary
2. Definition of Lot Tracking
3. Benefits of Automatic Tracking
4. Tracking Products from Vendors to Customers
5. How ERP Can Help
6. Conclusion

Definition of a Lot Tracking System

In the simplest terms, a lot tracking system records information related to particular product lots or batches. The lot or batch number can be assigned to one or many units that are produced or purchased on the same or various dates and that, possibly, have a production and/or expiry date. The system contains as much information as necessary depending on its complexity.

A rudimentary lot tracking system is one that is performed manually, which entails much paperwork, storage and maintenance; an advanced system is automated, using Enterprise Resource Planning (ERP) software to eliminate manual data entry, provide a working infrastructure and allow accurate product tracking.

Benefits of Automatic Tracking

An automated lot tracking system has many benefits, both direct and indirect, including:

1. Traceability through the distribution chain, both inside and outside company premises, by integrating with the purchase order, inventory control, sales order and invoicing processes
2. The use of a different lot number other than the manufacturer’s number and tracking by either that internal number or by the manufacturer’s external lot number
3. Rapid and efficient access to product information through accurate information storage, including lot number(s), location, bin and shelf, date, weight and origin, etc. This is crucial information, especially for product recall, a customer lot inquiry and an internal inventory count
4. Quality control by tracking raw materials and finished goods
5. Elimination of manual data entry, which is prone to errors
6. Elimination of incorrect product picking, whether for shipping or for use as raw material in the production of another finished goods item
7. Reports on inventory and status by lot number
8. Cost information by lots to be used for selling or assessing inventory
9. Communication integration with both advanced and older equipment, and other software

Tracking Products from Vendors to Customers

How ERP Can Help

Receiving Stock

1. When a product is received with a vendor’s lot number already on it, then that lot number can be used in one of three ways: it can be assigned as the external lot number, it can be used as the internal lot number, or a completely new lot number can be created
2. If a vendor does not provide a lot number, then the user should be able to assign one internally
3. The user should be able to scan or type in the external lot number
4. The internal lot number can be assigned through auto-generation or by a user-assigned number system
5. The lot number should be alphanumeric for flexibility
6. The software should allow enough character length to accommodate various lot number sizes from different vendors
7. Comparison of the shipment document against the actual lot numbers will ensure further accuracy
8. At the same time as recording a lot number, the system should allow recording of additional information such as vendor facts, purchase order and receipt information, quantity, weight, unit of measure, various dates (expiry, purchase, manufacture), and any other relevant data

Inventory Control

1. On product receipt, and after lot number recording, the ERP software should allow easy lot tracking through search capabilities
2. It should also provide various reporting capabilities on the lot or costs
3. Linking a particular lot to the receipt or original purchase order is a necessary function
4. Current allocation and history should be easily viewable
5. In order to ensure accurate reconciliation, the software must permit an inventory count by product and/or by lot number

Order Entry

1. Once a customer sales order is created, the software needs to allow selection and allocation of products by lots, to permit the various lots to be accurately linked with the shipments sent to the customer
2. With lot information provided on the sales order, the picking list (for internal picking of stock) can be printed, together with the packing or shipping list for external documents for the customer
3. Lot information, such as the lot number, must be clearly marked on all customers´ receipt
4. A damaged or non-required product returned by a customer via a Return Material Authorization (RMA) should be easily traced by lot number
5. Paperwork – to track the lots shipped or being received back – is eliminated
6. Lot tracking can provide a history of origin, sales order allocation, shipping date, customer identification and invoice

Product Recall

Product recall is a harsh reality and an inconvenience that businesses need to face and deal with in a swift manner. It not only costs the company time and money to track item purchases and sales, but it can bring an entire company to a standstill (as seen with Maple Leaf Foods). Worse, it can harm the company’s reputation if not dealt with in a timely, efficient and appropriate fashion. The speed with which a recall is handled can tilt the balance of customer satisfaction (up or down), which ultimately affects the company’s bottom line.

"Having effective recovery strategies for dealing with product recalls efficiently and in a timely manner is imperative. If a firm handles a product recall crisis well, it can be turned into a positive advantage for that company by actually increasing consumer satisfaction beyond where it was before the recall."

Manpreet Hora, assistant professor, Georgia Tech College of Management (product recalls research)

Efficiency and speed are essential for effectively handling product recalls as the company’s reputation and liability may be riding on a successful outcome. The best choices and processes are those that reduce the time it takes to recall the items. Relying on a paper trail is no longer acceptable as it is prone to human errors such as loss of papers and incorrect information.

The best business tracking tools include effective software, trained employees and established business processes. Investing in a clear and logical business process, employee training and the right ERP lot tracking software results in confident employees that can deal with the recall in the best possible manner – a worthwhile investment which may eventually save your company from a downturn or worse.

Research and tracking for a product recall includes:

1. Determining the affected item
2. Where it was bought
3. To whom it was sold
4. Sending alerts to customers
5. Receiving the products back
6. Resending products to vendors
7. Paperwork
8. Accounting adjustments

Automated lot tracking software can meet all these requirements using an effective, user-friendly system.

Software Updating and Moving Forward

To maintain business growth in the face of increasing global trade, businesses must prepare for the next generation of coding, which is Global Trade Item Number (GTIN). Software needs to be sufficiently flexible to allow for easy updates in the processing of the new tracking coding guidelines. As a minimum, the software company must be able to provide customization if necessary; even better, the software should integrate with other software and equipment.

Conclusion

The laws and regulations surrounding consumer protection and health issues necessitate ever more speedy, precise and efficient item tracking. All distributors (including food, chemicals, cosmetic and pharmaceutical) are increasingly accountable for tracking a particular lot/batch of an item and product parts, along with maintaining superior quality control.

Effective, efficient lot tracking relies on an accurate system to achieve superior quality control, inventory management, reduced costs and a stress-free business environment. Additionally, the system should provide accounting, integrated order entry, purchasing, job costing and reporting modules.

The appropriate ERP lot tracking software eliminates expensive manual product tracking by providing a fast, exact and cost-effective operating system. Therefore, it not only improves internal and external communication and efficient handling of product recalls, but also enables speedy compliance with all new health and consumer protection laws and regulations, and provides the framework to take advantage of expansion opportunities.

Reference

August 19, 2008. The Canadian Food Inspection Agency (CFIA) and Maple Leaf Consumer Foods warned the public not to serve or consume certain ready-to-eat deli meat products because of possible contamination with Listeria monocytogenes. The manufacturer, Maple Leaf Consumer Foods, Burlington, Ontario, voluntarily recalled the affected items (more than 25 meat products) from the marketplace. www.inspection.gc.ca/english/corpaffr/recarapp/2008/20080819e.shtml

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