LOT SIZING IN MRP Lot Size is a measure or quantity increment acceptable to or specified by the party offering to buy or sell.

Used also as an alternative term for lot quantity. Lot Sizing Determines: 1. The Timing of Replenishment Orders 2. The Amount of Inventory Carried 3. Frequency of Setups Definition of Terms: Holding Cost it includes the variable expenses incurred by the plant related to the volume of inventory Set-Up Cost / Ordering Cost Fixed, constant dollar amount incurred for each order placed Item Cost Price paid per item plus any other direct costs associated with getting the item to the plant Shortage Cost Loss of Customer goodwill, back-order handling, and lost sales Gross Requirement The Total-period demand for an item. Scheduled Receipts an open order that has an assigned due date. Projected Available The inventory balance projected in the future. Planned Orders Suggested order quantities, release dates and due dates created by an MRP System.

Different Lot Sizing Techniques 1. Fix Order Quantity (FOQ) Specifies the number of units to order whenever an order is placed. Orders may be based on arbitrary or by EOQ.

2. Economic Order Quantity an optimizing method used for determining order quantity and reorder points. It uses the formula: Where: Q= Optimal Order Quantity D= Annual Demand S= Ordering or set-up Cost H= Holding Cost

3. Period-Order Quantity (POQ or Order n Period) The Order quantity is determined by total demand for the item of the next n period.

4. Lot-for-Lot (L4L) The company orders enough to satisfy for the next period.

5. Least Unit Cost - A dynamic lot sizing technique that adds ordering cost & inventory carrying cost for each trial lot size divides by the number of units in the lot size. Then picking the lot size with the lowest unit cost.

6. Least Total Cost (LTC) - Dynamic lot sizing technique that calculates the order quantity by comparing the carrying cost and the ordering costs for various lot size selects the lot where these costs are most nearly equal.

Embed JIT into MRP JIT it attempts to eliminate inventory by scheduling purchases and manufacturing. Steps in Embedding JIT into MRP: 1. Analyze Material and labor variances throughout the manufacturing process 2. Select an MRP System that can perform JIT functions such as receiving parts and planned orders and backflushing from shop floor inventory locations. 3. Run MRP to produce planned orders for manufacturing.

References: http://www.businessdictionary.com/definition/lot-size.html http://www.slideshare.net/anandsubramaniam/lot-sizing-techniques http://www.ehow.com/how_8515429_embed-jit-mrp.html http://www.scribd.com/doc/53317287/Lot-Sizing-In-MRP

Operations Management Fourth Edition by R. Dan Reid & Nada R. Sanders.