Page 166 - Orlicky's Material Requirements Planning

CHAPTER 8 Lot Sizing 145

2. Economic order quantity (EOQ)
3. Lot for lot (LFL)
4. Fixed-period requirements—sometimes referred to as period of supply (POS)
5. Period order quantity (POQ)
6. Least unit cost (LUC)
7. Least total cost (LTC)
8. Part-period balancing (PPB)
9. Wagner-Whitin algorithm

The first two are demand-rate-oriented; the others are called discrete lot-sizing tech-
niques because they generate order quantities that equal the net requirements in an inte-
gral number of consecutive planning periods. Discrete lot sizing does not create remnants,
that is, quantities that would be carried in inventory for some length of time without
being sufficient to cover a future period’s requirements in full.
Lot-sizing techniques can be categorized into those which generate fixed, that is,
repetitively ordered, quantities and those which generate varying order quantities. This
distinction between fixed and variable is not to be confused with that between static and
dynamic order quantities. A static order quantity is defined as one that, once computed,
continues unchanged in the planned-order schedule. A dynamic order quantity is subject to
continuous recomputation as and if required by changes in net requirements data. A
given lot-sizing technique can generate either static or dynamic order quantities depend-
ing on how it is used.
Of the nine techniques listed earlier, only the first one is always static, and the third
one is, by definition, dynamic. The rest, including the EOQ, can be used for dynamic
replanning at the user’s option. The last four are expressly intended for such replanning.
It must be pointed out that dynamic order quantities are a mixed blessing in an MRP
environment. While they always reflect the most up-to-date version of the materials plan,
they affect the requirements (and thus also the planned coverage) for their component
items. A recomputation of a parent planned-order quantity often will mean that compo-
nent-item open orders have to be rescheduled in addition to recomputing and/or retim-
ing planned orders.
Upsetting previous plans on component-item levels sometimes can cause severe
problems, and while such problems inevitably arise in the course of operations, some of
them could be avoided to the extent that they are caused internally by the system recom-
puting previously planned orders. There is merit in the recommendation made by some
users of MRP systems that a planned order, once established, be “frozen” as to its quan-
tity (if at all possible) and that only its timing be changed subsequently as required by
changing net requirements. This practice is especially recommended for planned orders
that are timed within the span of the cumulative product lead time (as opposed to orders
planned for the longer-term future) because only those orders create gross requirements
on lower levels that are likely to be covered by open orders. A review of the nine lot-siz-
ing techniques enumerated earlier follows. These techniques usually are discussed in