How do you optimize lot sizing in MRP calculations? (2024)

The lot-for-lot method is the simplest and most straightforward way to optimize lot sizing in MRP calculations. It simply means ordering or producing exactly what is needed for each period, based on the net requirements. The net requirements are the gross requirements (the demand forecast) minus the projected available balance (the inventory on hand and on order). The lot-for-lot method minimizes the inventory holding costs, since there is no excess inventory, and the setup costs, since there is no need to change the production or ordering frequency. However, the lot-for-lot method may not be feasible or desirable if the demand is highly variable, the lead time is long, or the ordering or production costs are high.

The economic order quantity (EOQ) method is a classic way to optimize lot sizing in MRP calculations. It is based on a formula that calculates the optimal lot size that minimizes the total inventory costs, which include the ordering or setup costs and the holding costs. The EOQ formula is: EOQ = sqrt((2 x D x S) / H), where D is the annual demand, S is the ordering or setup cost per order, and H is the holding cost per unit per year. The EOQ method assumes that the demand is constant and known, the lead time is fixed and short, and the ordering or setup costs and the holding costs are constant and independent of the lot size. However, these assumptions may not hold in reality, and the EOQ method may not account for other factors, such as discounts, capacity constraints, or quality issues.

The periodic order quantity (POQ) method is a variation of the EOQ method that optimizes lot sizing in MRP calculations for items that are ordered or produced at regular intervals. It is based on a formula that calculates the optimal lot size that minimizes the total inventory costs, which include the ordering or setup costs and the holding costs. The POQ formula is: POQ = sqrt((2 x D x S) / H) x (P / T), where D, S, and H are the same as in the EOQ formula, P is the length of the order cycle or production run, and T is the length of the planning horizon. The POQ method assumes that the demand is constant and known, the lead time is fixed and short, and the ordering or setup costs and the holding costs are constant and independent of the lot size. However, unlike the EOQ method, the POQ method also assumes that the order cycle or production run is fixed and predetermined.

The least total cost (LTC) method is a more flexible and realistic way to optimize lot sizing in MRP calculations. It is based on a comparison of the total costs of different lot sizes for each item in each period, and choosing the lot size that minimizes the total cost. The total cost includes the ordering or setup costs, the holding costs, and the stockout costs. The LTC method does not rely on a formula, but rather on a trial-and-error approach that considers the net requirements, the lead time, the inventory costs, and the service level. The LTC method can account for variable and uncertain demand, variable and long lead time, variable and dependent ordering or setup costs and holding costs, and different inventory policies and objectives.

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