# Lot for Lot vs Fixed Order Quantity Simulator

> Source: https://netray.co/tools/lot-for-lot-vs-fixed-order-quantity-simulator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Compare the annual cost of ordering exactly what is needed each week against ordering a fixed batch, and see where the cost curve bottoms out.

## Category

supply-chain

## Audience

- Production planner
- Inventory manager
- Buyer

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Average weekly demand

**Key:** weekly_demand

**Type:** number

**Default:** 120

**Min:** 1

**Step:** 5

**Unit:** units

#### Cost per order or setup

**Key:** order_cost

**Type:** number

**Default:** 85

**Min:** 0

**Step:** 5

**Help:** Setup, purchasing and receiving cost per order

#### Unit cost

**Key:** unit_cost

**Type:** number

**Default:** 14

**Min:** 0

**Step:** 0.5

#### Annual holding cost rate

**Key:** hold_rate

**Type:** slider

**Default:** 22

**Min:** 5

**Max:** 40

**Step:** 1

**Unit:** %

**Help:** Capital, storage, insurance and obsolescence

#### Weeks per year with demand

**Key:** weeks_with_demand

**Type:** slider

**Default:** 48

**Min:** 4

**Max:** 52

**Step:** 1

**Unit:** weeks

**Help:** Lot for lot places one order per week with demand

#### Fixed order quantity

**Key:** foq

**Type:** number

**Default:** 600

**Min:** 10

**Step:** 10

**Unit:** units

**Outputs:**

#### Annual demand

**Key:** annual

**Expr:** weekly_demand * 52

**Format:** integer

#### Holding cost per unit per year

**Key:** hold_per_unit

**Expr:** unit_cost * hold_rate / 100

**Format:** currency

#### Lot for lot annual cost

**Key:** total_lfl

**Expr:** weeks_with_demand * order_cost

**Format:** currency

**Primary:** true

**Description:** Ordering cost only; receipts arrive when needed so holding is close to zero

#### Fixed order quantity annual cost

**Key:** total_foq

**Expr:** (annual / foq) * order_cost + (foq / 2) * hold_per_unit

**Format:** currency

**Primary:** true

**Description:** Ordering cost plus average inventory holding cost

#### Economic order quantity (reference)

**Key:** eoq

**Expr:** sqrt(2 * annual * order_cost / hold_per_unit)

**Format:** integer

#### Saving from fixed quantity (negative means lot for lot is cheaper)

**Key:** saving

**Expr:** total_lfl - total_foq

**Format:** currency

**Chart:**

#### Fixed order quantity annual cost vs order size

**Type:** line

**X:** foq

**From:** 50

**To:** 2000

**Steps:** 40

**Series:**

- total_foq
- total_lfl

**Disclaimer:** Simplified annual cost model with steady demand and no stockouts. Real demand is lumpy, so test your actual weekly requirements in a worksheet before changing lot sizing rules.

## Content

**Intro:** Lot for lot orders exactly what MRP needs each period. Fixed order quantity orders the same batch every time and carries the surplus. Which is cheaper depends on how expensive an order is compared with holding stock, and this simulator shows the crossover.

**Sections:**

#### How to use the simulator

**Body:** Enter average weekly demand, the cost to place or set up one order, the unit cost and your holding rate. Set how many weeks of the year actually have demand, and the fixed order quantity you are considering. The calculator compares both annual costs and the economic order quantity as a reference. The chart sweeps the fixed quantity from small to large so you can see where cost bottoms out.

#### The formulas behind it

**Body:** Lot for lot cost is the number of orders times order cost, with holding cost assumed near zero because receipts match requirements. Fixed quantity cost is annual demand divided by the batch size times order cost, plus half the batch times holding cost per unit per year. The EOQ is the square root of two times annual demand times order cost divided by holding cost per unit, the point where ordering and holding costs are equal.

#### Reading the result

**Body:** With high setup cost and cheap parts, a larger fixed quantity wins because it spreads the order cost. With expensive parts, short shelf life or engineered items, lot for lot wins because holding dominates. The flat bottom of the curve matters: ordering within 20 to 30 percent of the EOQ costs little, so supplier pack sizes and minimums can usually decide the practical quantity.

#### Limits and ERP notes

**Body:** The model assumes steady demand. In MRP, lumpy dependent demand makes a fixed quantity leave surplus that is carried until the next requirement. Most ERPs offer lot for lot, fixed quantity, period order quantity and minimum maximum rules on the item master, and the right choice often differs by ABC class. Use lot for lot for A items and expensive components, and larger lots for cheap C items.

**Cta:** Netray can analyse your ERP's real order history to show which items are sized wrongly and what the lot sizing change would cost or save.

**Faq:**

#### When is lot for lot the better lot sizing rule?

**Answer:** When order or setup costs are low relative to holding cost: expensive, perishable, made to order or fast obsolescing items. It also suits environments with short lead times and reliable suppliers, since there is little surplus stock to carry.

#### What is the economic order quantity?

**Answer:** The order size that minimises the sum of ordering and holding cost under steady demand. It equals the square root of two times annual demand times order cost, divided by annual holding cost per unit.

#### Why does fixed order quantity cost rise when the batch is too big?

**Answer:** Average inventory is roughly half the batch, so holding cost grows in proportion to batch size, while ordering cost only falls slowly once the number of orders is small. Past the EOQ, extra holding outweighs the savings.

#### Does this replace a period order quantity analysis?

**Answer:** No. It compares two common rules with average demand. For actual lumpy requirements, test period order quantity or Silver Meal style rules on your real weekly demand with a worksheet or your ERP simulation mode.

## Search terms

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