Lot Sizing Eoq

1. Among the various applications used in inventory management and planning are several methods of determining ordering policies to most effectively channel resources. How much to order of a given item is the very heart of the ordering planning process. 2. At a pivotal point in the inventory requirements planning process, one of a number of possible ordering policies or ordering rules is applied. The planned order quantities or lot sizes are a function of the lot sizing rule specified for the item in question. Different lot sizing rules include arbitrary decision rules and several variants of the conventional economic order quantity (EOQ) method. 3. This procedure is devoted to explaining and formulating eight styles (EOQ is covered in a separate document) of lot sizing commonly used in business. Conventional arbitrary methods include ordering truckload quantities or ordering the minimum quantity necessary to obtain a price discount. These are not totally inappropriate methods since they do consider some of the economic factors involved, but they do ignore inventory carrying costs and set up or ordering costs. The methods described below and in EOQ attempt to minimize the sum of inventory ordering and carrying costs.