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# LOT SIZING: LEAST UNIT COST

BY: RISHABH JAIN UMANG AGARWAL
311 352

 The heuristic methods may not require such changes in the production plan. where in reality the demand is uncertain and subject to change. Optimal solution to the deterministic model may actually yield higher cost because of the changes in the demand. the optimal solution may change significantly causing some managerial problems.    If the demand and/or costs change. .LOT-SIZING  Deterministic model. Some heuristic methods (example : Least Unit Cost) give lower cost in the long run.

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. Firms Objective : “Making Money:  Reduce Inventory – Lowers Cost – Enhances Profit  LUC is used to take the advantage of economic purchase order discounts and also to meet the variations in the product demand.  To find out lowest cost order quantity.

. by the number of units in lot size.  Divides  Then picking the lot size with lowest unit cost.LEAST UNIT COST  A dynamic lot sizing technique that:  Includes ordering cost and inventory carrying cost for each trial lot size.

LOT SIZING CALCULATION  As it is discussed before. least unit cost heuristic chooses a lot size that equals the demand of some K periods in future.  The  The Unit cost = [(Ordering cost + Carrying cost + purchase price) / Order quantity ] . The best K is the last one up to which the average cost per unit decreases. 3. only difference is that Silver-Meal heuristic chooses K on the basis of average cost per period and least unit cost on average cost per unit. average holding and ordering cost per unit is computed for each K=1. starting from K=1 and increasing K by 1 until the average cost per unit starts increasing. etc. 2. where K>0.

Lead time for A is three weeks and setup cost is \$10. .01 per unit per week. There is a carrying cost of \$0. Week 1 2 3 4 5 Gross requirements Week 30 6 50 7 10 8 20 9 70 10 Gross requirements 80 20 60 200 50 Determine the lot sizes. Beginning inventory is 90 units.LOT-SIZING Example: The MRP gross requirements for Item A are shown here for the next 10 weeks.

week 4 2 weeks. weeks 4 to 8 6 weeks. weeks 4 to 7 5 weeks. weeks 4 to 6 4 weeks. Unit Q 4 5 6 7 8 9 10 Cost Cost Cost The order is placed for K periods. Ord. . Using the above table to find K. weeks 4 to 5 3 weeks. for some K>0.Lot-Sizing: Least Unit Cost j rj Order for weeks 1 week. weeks 4 to 9 7 weeks. weeks 4 to 10 1 2 3 4 5 6 7 20 70 80 20 60 200 50 Units in the inventory at the end of Week H.

. So. an order is required.Lot-Sizing: Least Unit Cost Period Gross Requirements Beginning Inventory Net Requirements Time-phased Net Requirements Planned order Release Planned Deliveries Ending Inventory 1 2 3 4 5 6 7 8 9 10 30 50 10 20 70 80 20 60 200 50 90 60 10 0 20 0 20 0 0 60 10 0 Week 4 net requirement = 20 > 0.

weeks 4 to 5 3 weeks.Lot-Sizing: Least Unit Cost j rj Order for weeks 1 week. weeks 4 to 6 4 weeks. Average cost per unit = (0+10)/20=\$0. Ord. weeks 4 to 9 7 weeks. weeks 4 to 8 6 weeks. weeks 4 to 10 1 2 3 4 5 6 7 20 70 80 20 60 200 50 Units in the inventory at the end of Week H.500 If K=1.00 10 . week 4 2 weeks. order is placed for 1 week and the order size = 20. the ending inventory = inventory holding cost =0. weeks 4 to 7 5 weeks. Then. Unit Q 4 5 6 7 8 9 10 Cost Cost Cost 20 0.50 . The order cost = \$10.

Then. weeks 4 to 8 6 weeks. . Average cost per unit = (0. Ord. Unit Q 4 5 6 7 8 9 10 Cost Cost Cost 20 90 70 0. weeks 4 to 5 3 weeks.70+10)/90=\$0.Lot-Sizing: Least Unit Cost j rj Order for weeks 1 week. weeks 4 to 7 5 weeks.01. = 0.500 .119 If K=2. weeks 4 to 6 4 weeks. weeks 4 to 9 7 weeks.00 10 0.70. inventory at the end of week 4 = 90-20=70 and Holding cost =70 0.119. week 4 2 weeks. order is placed for 2 weeks and the order size = 20+70=90. weeks 4 to 10 1 2 3 4 5 6 7 20 70 80 20 60 200 50 Units in the inventory at the end of Week H.70 10 .

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