Question

How important is lot sizing? How should managers choose an Appropriate lot size? Should it be chosen strictly on economic basis, or should intangible factors be considered.

Answer 1

Answer:-Lot sizing refers to the number of items ordered on a specific date for manufacturing or distribution.

Lot sizing is very important as it helps to identify the perfect lot size or number of items. For example MR. X has a manufacturing company and wants to implement a Material Requirement Planning (MRP) so that it can operate efficiently but for an MRP system to function, he has few queries like how to ensure that he manufactures the right quantity of item and not too many. This is when lot-sizing solves the problem by measuring the number of items that need to be manufactured according to the requirements.

Managers should choose an appropriate lot sizing depending on the nature of the business and applying the different methods of lot-sizing like Fixed Order Quantity(FOQ), Economic Order Quantity, Lot-Of-Lot(LFL), Period Order Quantity (POQ) which have different cost implications. Thus, the managers should have a lot of sizes that balances the cost of ordering the cost of holding inventory.

It should be chosen strictly on an economic basis because EOQ helps to minimize the total inventory cost by producing a large number of items at a time. Economic Order Quantity (EOQ) model balance between cost ordering and cost of holding. But sometimes, there are other factors as well such as unexpected supply risk which should also be taken into consideration while implementing ordering policy.

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