Page 164 - Orlicky's Material Requirements Planning

C HAP TE R 8

Lot Sizing

The traditional interest in the classic problem of the economic order quantity (EOQ) has
shifted to lot sizing in an environment of discrete period demands. This development has
been stimulated by the emergence of material requirements planning (MRP) systems,
which expresses demand for inventory items in discrete time-series fashion by comput-
ing time-phased gross and net requirements.
A significant portion of the literature related to MRP, including virtually all the sci-
entifically oriented writing on the subject (see the Bibliography at the end of this chap-
ter), is devoted to discrete-demand, time-series lot sizing. This is, without a doubt, the
best-researched aspect of MRP. A number of distinct techniques have been developed, the
most important of which are described and evaluated in this chapter, along with the more
traditional approaches to lot sizing.

COSTS IN LOT SIZING

Two categories of costs enter into decisions of how much of an item should be purchased
or made. These are:

1. Ordering costs. A composite of all costs related to placing purchase orders or
preparing work orders, including
■ Processing paperwork—preparing requisitions, purchase orders, receiving
documents for purchased materials, and shop packets for manufactured items
■ Changing machine and workstation setups
■ Inspection, scrap, and rework associated with setup
■ Recordkeeping for work-in-process
2. Inventory carrying costs. The total of costs related to carrying the resulting inventory,
including
■ Obsolescence caused by market, design, or competitors’ product changes
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