Answer
Bring the part's on-hand quantity down to zero first by scrapping the existing inventory in the Inventory Part In Stock window, then update the Lot/Batch tracking setting on the part catalogue record and save. If the part also has 'Negative on Hand Allowed' checked, untick that first too — leaving it checked triggers a separate, related error ('Negative on Hand cannot be allowed when the part is Lot or Serial Tracked') once you try to switch to a tracked setting, since negative on-hand and lot/serial tracking are mutually exclusive.