Lot-sizing Decisions
Business Finance
he MRP process can provide production planning and determine net requirements. However, it does not tell you when and how much to order. Your textbook covers three lot-sizing methods that can be used to answer the question of when and how much to order. The three methods are Lot-for-lot, Economic order quantity (EOQ), and Periodic order quantity (POQ). Your task is to use all three methods to determine the best lot size to order.
The setup cost for each order will run the company $150 each time and will take one week to fulfill each order. If you have extra inventory, then the holding cost is $1 per week per unit. Assuming that you started with an initial inventory of 30 and based on the requirements and planned order receipts shown in the chart, calculate the lot sizing.
| Week | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
|---|---|---|---|---|---|---|---|---|---|---|
| Gross Requirements | 30 | 25 | 35 | 0 | 20 | 30 | 0 | 25 | 25 | 45 |
| Planned order receipts | 0 | 25 | 35 | 0 | 20 | 30 | 0 | 25 | 25 | 45 |
Assignment
Use Excel OM for lot sizing and calculate Lot-for-lot, EOQ, and POQ. Submit one spreadsheet containing a tab for each method. On a fourth tab summarize the cost of each of the methods, the number of orders for each method and determine the method that provides the lowest total cost.
