When a product is purchased by an end-user, it is generally sold individually. However, when the product is initially delivered to a distributor by a supplier or sold wholesale, it is usually grouped into a large quantity and sold as a lot.
When your business expands, it is almost guaranteed that you will be dealing with larger quantities of items that are grouped into lots. Having an understanding of lots can help your business continue to succeed during its growth.
Overview: What is a lot?
A lot can be defined as a group of individual pieces that all derive from a common source, and have similar characteristics that are meant to be approved for acceptance at the same time.
3 benefits and 2 drawbacks of lots
There are both benefits and drawbacks in dealing with lots that are worth considering:
1. Benefit: Cheaper
It is much cheaper to make and deliver items in bulk as opposed to individually. It also winds up being cheaper to ship per unit when in a larger quantity. This ends up saving money for both the manufacturer and the customer.
2. Benefit: Delivery speed
If selling items by the lot, it allows for the warehousing of the items in advance and means that they can already be ready when an order is made. Therefore, a customer can get the items quickly instead of waiting for them to be produced.
3. Benefit: Consistency
If items are all made in one batch, they are likely to have the same consistency in quality.
4. Drawback: Storage
One drawback of lots is that there needs to be ample storage available to house large quantities of products.
5. Drawback: Potential for a lack of quality control
When sold in lots, there is the potential for some items in the lot to not meet quality standards if they are not being checked individually and instead using something like the sampling method.
Why are lots important to understand?
Lots are important to understand for the following reasons:
Whether you are a manufacturer, supplier, or retailer, once your business begins to grow, there will be a need to deal with lots of goods. Having an understanding of them will be important when you are dealing with larger quantities of goods.
Having an understanding of lots is important so that, as a business, if you are having to purchase lots from a supplier, you are picking the right size for your needs.
Understanding lots is an important aspect of efficient inventory management.
An industry example of a lot
There is a specialty store that deals with unique recreational sporting goods. In the last two months, multiple customers have complained about a brand of boomerangs. The issue is that out of every five of these boomerangs sold by the retailer, one is returned. When the store manager asks the customers why they are returning the boomerang, they say that it does not return when thrown. The store owner reaches out to the distributor, who then contacts the supplier with the lot information. Thanks to efficient lot tracking, the supplier is able to check the warehouse records for any issues that might have caused that particular lot of boomerangs to have that many defects. Upon investigation, it turns out that the boomerangs that have been the subject of complaints came from a lot that had some pallet damage during the initial shipment from the manufacturer to the supplier.
3 best practices when thinking about lots
Here are some best practices to keep in mind when working with lots:
1. Lot tracking
If you are warehousing lots, lot tracking is integral. This helps you keep track of landing costs, expiration dates if the lots contain perishable goods, and other important information. Lot tracking is used from start to finish throughout a supply chain.
2. Make sure employees are well-trained in dealing with lots
Have your warehouse employees well-trained on fulfilling orders correctly from lots. This is helpful in keeping inventory current and minimizing overhead.
Having barcodes for your lots helps cut down on manual labor and minimizes data entry.
Frequently Asked Questions (FAQ) about lots
What is the difference between a serial number and a lot number?
A lot number could be assigned to products that are grouped under similar characteristics, while a serial number is used for a single product.
How can lot tracking help with defects?
With accurate lot tracking, if a customer encounters a defect, it is easier to go back and track the source.
Why is manual tracking of lots ill-advised?
Manual tracking of lots gives a much greater chance for human error. Automation for the tracking of lots can minimize delays in tracking as well as help to prevent errors that can be costly.
Successfully navigating the move from individual items to lots
Getting to the point where your organization moves beyond individual items and begins dealing in large quantities can be stressful. With an understanding of how lots work and how to adequately track them, you can make sure that your organization is well-prepared to handle the growth.