Lot Sizing

LOT SIZING
Lot Sizing
Reduce Costs (Inventory, Setup).
Adequate level of raw material available in the inventory.
Helps in plan the manufacturing and purchasing activities.
Meeting the demand timely.
Managing Capacity.
LOT SIZING TECHNIQUES

Lot for Lot
Bulk
EOQ
POQ
Part Period Balancing (PPB)
Least Unit Cost
Silver Meal (Minimum Cost per Period)
Wagner-Whitin algorithm
Least Total Cost
McLaren Order Moment (MOM)
Groffs algorithm
Freeland & Colley method
Lot for Lot

Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
30
0
40
40
0
0
0
10
10
0
40
40
0
30
30
0
0
0
30
30
0
55
55
30
40
10
40
30
30
55
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
Total Cost = Setups + holding

Setups = 7 costing $700
Holding = 0
Holding Cost = $1 per week/unit

Setup cost = $100 per setup
Lead Time =1 week
Bulk
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
155
0
115
0
85
0
85
0
55
0
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
35
0
0 205 165 165

30
0
0
0
235
235

Holding = 1030 x $1 = $1030
TOTAL= $1130
Holding Cost = $1 per week/unit

Setup cost = $100 per setup
Lead Time =1 week
EOQ
Economic Order Quantity

Holding = 318 x $1 = $318
TOTAL= $718
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
73
43
0
3
0
3
7
73
66
0
26
4
73
69
0
69
0
39
16
73
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
73
73
73
73
POQ
Periodic Order Quantity
POQ = EOQ
d
Where d = D average demand or demand rate
52
From previous example POQ = 73 = 2.7 3
27

Holding = 280 x $1 = $280
TOTAL= $580
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
70
40
0
0
0
0
10
80
70
0
30
0
0
0
85
85
0
55
0
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
70
80
85
PPB
Part Period Balancing
Economic Part Period =
Setup
= 100
Holding Cost
Where
Select part periods that are closest to the EPP value
Periods
Combined
2
2,3
2,3,4
2,3,4,5
2,3,4,5,6
Total
Lot
Size
30
70
70
80
120
Setup = cost of 1 setup

Holding Cost = Cost per unit per week
Costs ($)
Part Periods ($)
0
40x1
40x1 + 0x2
40x1 + 0x2 + 10x3
40x1 + 0x2 +10x3
+ 40x4
Setup
Holding
Total
100
100
100
100
0
40
40
70
100
140
140
170
100
230
330
Select 2-5. Part period of $70, for periods 2-5 is as close

to EPP as we can get
0
100
0
100
6
40
30x1
100
30
130
6,7
70
30x1 + 0x2
100
30
130
6,7,8
70
100
120
220
6,7,8,9
100 30x1 + 0x2 + 30x3
Select 6-9. Part period of $120, for periods 6-9 is as
PPB
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
80
50
0
10
0
10
0
0
40
100
60
0
30
0
30
0
0
55
55
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
80

Holding = $190
TOTAL= $ 490
100
55
Least Unit Cost

Select that cost where
per unit cost is lowest
Periods
Combined
Total
Lot
Size
Total Cost Per

unit =
Costs ($)
Part Periods ($)
0
2
30
40x1
2,3
70
40x1 + 0x2
2,3,4
70
40x1 + 0x2 + 10x3
2,3,4,5
80
Select 2-4. Cost per unit is least
0
5
10
40x1
5,6
50
40x1 + 30x2
5,6,7
80
40x1 + 30x2 + 0x3
5,6,7,8
80
5,6,7,8,
40x1 + 30x2 + 0x3 +
110
30x4
9
Select 5-8. Cost per unit is least
9
30
0
Setup
Holdi
ng
Total
Cost per unit =

Total/lot size
100
100
100
100
0
40
40
70
100
140
140
170
3.33
2
2
2.125
for periods 2-4

100
100
100
100
0
40
100
100
100
140
200
200
10
2.8
2.5
2.5
100
220
320
2.9
for periods 5-8

100
100
3.33
Least Unit Cost

Holding = 195 x $1 = $195
TOTAL= $495
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
70
40
0
0
0
0
10
80
70
0
30
0
0
0
0
30
85
55
0
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
70
80
85
Silver Meal Algorithm
(Minimum Cost per Period)
Cost Per
Period =
Select that cost where

per unit cost is lowest
Costs ($)
Periods
Combined
# of
period
Total
Lot Size
2
1
2,3
2
2,3,4
3
2,3,4,5
4
2,3,4,5
5
,6
Select 2-5. Cost
6
1
6,7
2
6,7,8
3
Cost per
period = Total
cost / periods
Part Periods ($)
Setu
p
Holdi
ng
Total
30
70
70
80
0
40x1
40x1 + 0x2
40x1 + 0x2 + 10x3
100
100
100
100
0
40
40
70
100
140
140
170
100
70
46.66
42.5
120
40x1 + 0x2 + 10x3

+ 40x4
100
230
330
66
per period is least for

0
40
30x1
70
30x1 + 0x2
70
30x1 + 0x2 +
6,7,8,9
4
100
30x3
Select 6-8. Cost per period is least for
periods 2-5
100
100
100
0
30
30
100
130
130
100
65
43.33
100
120
220
55
periods 6-8
Silver Meal Algorithm

Holding = 155 x $1 = $155
TOTAL= $455
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
80
50
0
10
0
10
0
0
40
70
30
0
0
0
0
30
85
55
0
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
80
70
85
Wagner-Whitin Algorithm
Total cost (Zce ) = for 1 c e N
Zce
= It is the total cost of periods, from

period c to period e
= Setup Cost
Qce
= Holding cost for the periods.
= Total demand in periods from

period c to period e
= Min(Zce + )
Step 1
c e=1
1
2
3
4
5
6
7
8
9
10
2
100
Total Variable Cost table (Zce)

3
4
5
6
7
10
140
140
170
330
480
480
690
1130
100
100
120
240
360
360
540
925
100
110
190
280
280
430
760
100
140
200
200
320
595
100
130
130
220
440
100
100
160
325
100
130
240
100
155
100
Step 2
c
1
2
3
4
5
6
7
8
9
10
e=1
Total Variable Cost table (Zce) and( )

2
3
4
5
6
7
8
100
10
140
140
170
330
480
480
690
1130
200
200
220
340
460
460
640
1025
240
250
330
420
420
570
900
240
280
340
340
460
735
270
300
300
390
610
370
370
430
595
400
430
540
400
455
490
100
140
140
170
270
300
300
390
455
Step 2
c
1
2
3
4
5
6
7
8
9
10
e=1
Total Variable Cost table (Zce) and( )

2
3
4
5
6
7
8
100
10
140
140
170
330
480
480
690
1130
200
200
220
340
460
460
640
1025
240
250
330
420
420
570
900
240
280
340
340
460
735
270
300
300
390
610
370
370
430
595
400
430
540
400
455
490
100
140
140
170
270
300
300
390
455
Wagner-Whitin Algorithm
Holding = 155 x $1 = $155
TOTAL= $455
Period
Gross requirement
1
35
2
30
3
40
4
0
5
10
6
40
7
30
8
0
9
30
10
55
35
0
0
30
80
50
0
10
0
10
0
0
40
70
30
0
0
0
0
30
85
55
0
Scheduled Receipt
On hand
35
Net Requirement
Planned Order
Receipt
Planned Order
Release
80
70
85
Assignment
Least Total Cost
McLaren Order Moment (MOM)
Groffs algorithm
Freeland & Colley method
Cost Comparison
Simplicity in calculations.
Focus = Short run planning.
Least Unit Cost
Simple Computation.
Least Unit Cost.
Info about future demand must be known.
Minimized cost of lots only.
Costs differ from period to period.
Economic Order Quantity (EOQ)
Minimizes both ordering and holding cost at optimal
quantity Q*
Match customer demand.
Exact estimation of costs are difficult.
Does not allow combining several different products in the
same order.
Assumes Constant demand and disruptions in demand
change the results.
Silver Meal
Consider variable demand.

Easier to use than complex programming application
models.
More computations.
Ineffective if demand drops in future periods.
Decision depends upon future periods and demands.
Conclusion
Thank You
I hear and I forget, I see and I remember. I do and I
understand.
- Chinese Proverb

Lot Sizing - Comprehensive

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Lot Sizing - Comprehensive

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LOT SIZING TECHNIQUES

Lot for Lot

Total Cost = Setups + holding

Holding Cost = $1 per week/unit

0 205 165 165

Total Cost = Setups + holding

Holding Cost = $1 per week/unit

Economic Order Quantity

Total Cost = Setups + holding

Periodic Order Quantity

Total Cost = Setups + holding

Part Period Balancing

Economic Part Period =

Setup = cost of 1 setup

Part Periods ($)

Select 2-5. Part period of $70, for periods 2-5 is as close

Part Period Balancing

Total Cost = Setups + holding

Least Unit Cost

Total Cost Per

Cost per unit =

for periods 2-4

for periods 5-8

Least Unit Cost

Silver Meal Algorithm

(Minimum Cost per Period)

Select that cost where

Part Periods ($)

40x1 + 0x2 + 10x3

per period is least for

Silver Meal Algorithm

= It is the total cost of periods, from

= Holding cost for the periods.

= Total demand in periods from

Total Variable Cost table (Zce)

Total Variable Cost table (Zce) and( )

Total Variable Cost table (Zce) and( )

Part Period Balancing

Least Unit Cost

Economic Order Quantity (EOQ)

Minimizes both ordering and holding cost at optimal

Consider variable demand.

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