Lot Sizing Techniques
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The document discusses various lot sizing techniques used to determine optimal batch sizes for production and purchasing. It describes techniques like economic order quantity (EOQ), fixed order quantity (FOQ), lot-for-lot (LFL), periods of supply (POS), period order quantity (POQ), least unit cost (LUC), least total cost (LTC), and part period balancing (PPB). Examples are provided to illustrate how each technique works and the optimal lot size is calculated. The goal of lot sizing is to minimize total inventory costs by balancing setup/ordering costs and carrying costs.
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Lot Sizing Techniques
- 1. Lot Sizing Techniques To determine batch size for purchased or produced items Anand Subramaniam
- 4. Lot Sizing & Safety Stock Lot Size Item quantity that is made or purchased. Safety Stock Quantity of stock planned to be in inventory to protect against fluctuations in demand and / or supply
- 7. Example - FOQ 500 500 Planned Order Releases 500 500 Planned Receipts 150 265 450 570 200 460 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 500 Order Quantity
- 9. Example - EOQ Avg. Demand = 152.5/wk D = 152.5 ´ 52 wks/yr = 7,930 EOQ = = = 650 50 . 1 25 . 0 ) 930 , 7 )( 10 ( 2 650 650 Planned Order Releases 650 650 Planned Receipts 450 565 100 220 350 610 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 EOQ Order Quantity Setup cost = $10/order : Cost of item = $1.50/unit : Inventory carrying cost = 25% /year
- 11. Example – LFL 115 185 120 130 260 120 Planned Order Releases 115 185 120 130 260 120 Planned Receipts 80 80 80 80 80 80 80 80 80 Projected Available 160 130 Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 LFL Order Quantity
- 13. Example - POS 3 Weeks 420 510 Planned Order Releases 420 510 Planned Receipts 80 195 380 80 210 470 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 POS Order Quantity
- 15. Example - POQ EOQ = 650 (Slide # 13) 630 Planned Order Releases 630 Planned Receipts ? ? 80 200 330 590 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 Avg Week Use = 152.5 : POQ = 650/152.5 = 4.26 » 4 POQ Order Quantity
- 17. Example - LUC COQ *= Carrying cost - (260)(0.007212)(1 wk) = 1.875 : (185)(0.007212)(4 wks) = 5.337 : (115)(0.007212)(5 wks) = 4.147 Inventory carrying cost = (25%)($1.50/52) = $0.007212/unit/wk 0.028 25.83 15.83 4.15 10 5 115 930 8 115 0.027 21.68 11.68 5.34 10 4 185 815 7 185 0.026 16.35 6.35 2.60 10 3 120 630 6 120 0.027 13.75 3.75 1.88 10 2 130 510 5 130 0.031 11.88 1.88 1.88 10 1 260 380 4 260 0.083 10 0.00 0.00 10 0 0 120 3 120 Unit Cost Total Cost Cum Cost This Period (*) Order Cost Week Carried Excess Inv Cum Order Qty In Period Future Reqmnt Carrying Cost
- 18. Example - LUC LUC = COQ* = 630 630 Planned Order Releases 630 Planned Receipts ? ? 80 200 330 590 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 Order Quantity
- 20. Example - LTC 25.83 15.83 4.15 10 5 115 930 8 115 21.68 11.68 5.34 10 4 185 815 7 185 16.35 6.35 2.60 10 3 120 630 6 120 13.75 3.75 1.88 10 2 130 510 5 130 11.88 1.88 1.88 10 1 260 380 4 260 10 0.00 0.00 10 0 0 120 3 120 Total Cost Cum Cost This Period Order Cost Week Carried Excess Inv Cum Order Qty In Period Future Reqmnt Carrying Cost
- 21. Example - LTC LTC = 815 ? 815 Planned Order Releases ? 815 Planned Receipts ? 80 265 385 515 775 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 Order Quantity
- 23. Example - PPB 2195 575 5 115 930 8 115 1620 740 4 185 815 7 185 880 360 3 120 630 6 120 520 260 2 130 510 5 130 260 260 1 260 380 4 260 0 0 0 0 120 3 120 Cum Cost This Period Week Carried Excess Inv Cum Order Qty In Period Future Reqmnt Part Period
- 24. Example - PPB PPB = 815 ? 815 Planned Order Releases ? 815 Planned Receipts ? 80 265 385 515 775 80 240 370 Projected Available Scheduled Receipts 115 185 120 130 260 120 160 130 Gross Requirement 8 7 6 5 4 3 2 1 Lead Time = 2 weeks Week Safety Stock = 80 Order Quantity