Operations Management: An Integrated Approach, 5th Edition

COMPARISON OF LOT SIZE RULES

Different lot size rules can be used with MRP systems, such as least unit cost, least total costs, and parts period balancing. In this book, we cover the fixed-order quantity (FOQ), lot-for-lot (L4L), and period-order quantity (POQ). These lot size rules are discussed in Chapter 12. Different lot size rules change the frequency of replenishment orders and determine the quantity of the order. Let's look at an example comparing FOQ, L4L, and POQ.

EXAMPLE 14.3 Comparing Different Lot Size Rules at Storage Solutions by Elyssa, Inc.

Given the following gross requirements, let's calculate the planned replenishment orders needed, then calculate the inventory and ordering costs for the next 13 weeks. The CD cabinet has gross requirements of 25 in periods 2 and 3; 40 in periods 4 and 5; and 60 in periods 7, 8, 9, 11, 12, and 13. The first lot size to try is FOQ = 144, then use L4L, and finally use a POQ = 4 periods. The cost to place an order is $25, and the holding cost per unit per period is $0.10.

•Before You Begin: Companies using MRP often use different lot-sizing techniques. Different techniques determine the timing of replenishment orders, the amount of inventory carried, and the frequency of setups. In this problem, you compare three different lot size rules. Calculate the costs associated with each ordering policy and determine which lot size rule makes the most sense. Remember that the fixed-order quantity (FOQ) rule requires you to order the same ...