1. Dr. S. S. Bhakar Director, PIMG

2. ‘‘ I often feel like the director of a cemetery. I have a lot of people under me. But nobody listens! ’’ - General John Gavin

3. Lot size decision impacts on Inventory levels Setup & ordering costs Capacity requirement Availability Lot Size Decision is Impacted By Number of Level in BOM Cost of setup or purchase order Cost of carrying an item in inventory Low level code of an item Lot sizing decision – impacts on Determined

4. Lot Sizing & Safety Stock Lot Size Item quantity that is made or purchased. Safety Stock Quantity of Stock planned to be in inventory to protect against fluctuations in demand and / or supply

5. Lot Sizing Techniques Fixed Order Quantity (FOQ) Economic Order Quantity (EOQ) Lot-for-lot (LRL) Periods of Supply (POS) Period Order Quantity (POQ) Least Unit Cost (LUC) Least Total Cost (LTC) Part Period Balancing (PPB)

6. Fixed Order Quantity (FOQ) Specify a Number of Units arbitrarily to be ordered each time an order is placed for a particular item Quantity may be arbitrary or EOQ

7. Example – FOQ O rder Quantity 500 Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 37024080460200570450265150 Planned Receipts 500 Planned Order Release 500

8. Economic Order Quantity (EOQ) A type of fixed order quantity that determines the amount of an item to be purchased or made at one time Goal= minimize the combined cost of ordering (acquiring) and carrying inventory EOQ =√2D*C O /C H D= Annual demand for the item Q = Order quantity CO= Cost of order preparation or setup cost CH=Inventory carrying cost per unit per year

9. Example –EOQ Setup cost =$10/order : cost of item =$ 1.50/ unit : Inventory carrying =25% / year Order Quantity EOQ Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 370 24080610350220100565450 Planned Receipts 650 Planned Order Release 650 Avg. Demand=152.5/wk EOQ=√2CO D/C H = √2(10)(7,93) / 0.25 x 1.50=650 D=152`52 wks/yr =7,930

10. Lot-for-Lot (LFL) Also called discrete order quantity. It generates planned orders in quantities equal to the net requirements in each period No extra on–hand inventory used for perishable food items or items for which the market fluctuates widely

11. Example –LFL order Quantity LFL Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts 130160 Projected available80 Planned Receipts 120260130120185115 Planned Order Release 120260130120185115

12. Periods of Supply (POS) Lot size will be equal to the net requirements for a given number of periods (e.g. weeks) into the future

13. Example –POS order Quantity POS 3 Weeks Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 370240804702108038019580 Planned Receipts 510420 Planned Order Release 510420

14. Period order quantity (POQ) Uses EOQ to calculate a fixed number of period requirements to include in each order POQ = EOQ / Avg. Period Usages In case of fraction, round to the nearest number

15. EOQ =650 (slide #13) order Quantity POQ Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 3702408059033020080?? Planned Receipts 630 Planned Order Release 630 Avg Week Use = 152.5 :POQ =650/152.5 =4.26>>4 Example –POQ

16. Least Unit Cost (LUC) A dynamic lot sizing technique that Adds ordering cost & Inventory carrying cost for each trial lot size Divides by the numbers of units in the lot size Then Picking the lot size with the lowest unit cost

17. Example –LUC Carrying Cost Future Reqmnt In Period Cum Order Qty Excess Inv Week Carried Order Cost This Period Cum CostTotal Cost Unit Cost 1203 0010 0.00 0100.083 2604380260110 1.88 11.880.031 1305510130210 1.883.7513.750.027 1206630120310 2.606.3516.350.026 1857815185410 5.3411.6821.680.027 1158930115510 4.1515.8325.830.028 Inventory carrying cost = (25%) ($1.50/52) = $0.007212/unit /wk *=Carrying cost- (260) (0.007212) (1wk) = 1.875: (1.85) (0.007212) (4 Wks) =5.337  115) (0.007212) (5wks) =4.147

18. Example –LUC order Quantity LUC =COQ* =630 Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 3702408059033020080?? Planned Receipts 630 Planned Order Release 630

19. Least Total Cost (LTC) Dynamic lot sizing technique that calculates the order quantity by Comparing the carrying cost and the cost of ordering for various lot sizes Selects the lot where these costs are most nearly equal For dependent demand, total cost is discrete and the minimum total cost over the planning period usually occurs at the point closest to the balance of carrying cost & ordering costs.

20. Example –LTC Carrying Cost Future Reqmnt In Period Cum Order Qty Excess Inv Week Carried Order Cost This PeriodCum CostTotal Cost 1203 0010 0.00 010 2604380260110 1.88 11.88 1305510130210 1.883.7513.75 1206630120310 2.606.3516.35 1857815185410 5.3411.6821.68 1158930115510 4.1515.8325.83

21. Example –LTC order Quantity LTC =815 Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 3702408077551538526580? Planned Receipts 815? Planned Order Release 815?

22. Part Period Balancing (PPB) Variation of LTC With Look Ahead/ look back Steps Compute the economic part period (EPP) EPP= (Ordering cost) / Caring cost / unit /period) Example: EPP= 10/0.0072=1389 Add requirements period by period until the generated part periods approximate the EPP Part Periods: Number of units of inventory held for a period.

23. Example –PPB Part Period Future Reqmnt In PeriodCum Order Qty Excess InvWeek Carried This PeriodCum Cost 1203 0000 26043802601 13055101302 260520 12066301203 360880 18578151854 7401620 11589301155 5752195

24. Example –PPB order Quantity PP =815 Safety Stock =80 Lead Time =2 Weeks Week 12345678 Gross Requirement 130160120260130120185115 Scheduled Receipts Projected available 3702408077551538526580? Planned Receipts 815? Planned Order Release 815?

25. “I hear and I forget, I see and I remember. I do and I understand.” -Chinese Proverb