What Is Lot Sizing?

Lot Sizing Explained

After MRP nets requirements, it must decide how to group them into orders. Lot-for-lot creates one order exactly matching each period requirement, minimizing inventory but maximizing setups. Fixed order quantity always orders the same amount, which suits parts with a hard supplier pack or minimum. Period order quantity, sometimes called days of supply or fixed period requirements, sums demand across a defined number of periods into one order. Economic order quantity computes a mathematically optimal size from ordering cost, annual demand, and carrying cost.

The classic economic order quantity is the square root of two times annual demand times order cost, divided by unit carrying cost. Its weakness is that it assumes steady demand and constant costs, neither of which holds in discrete manufacturing with engineering changes and seasonal orders. In practice most shops use it as a sanity check on order magnitude rather than as a directly implemented policy, and use period order quantity or lot-for-lot with a minimum for actual planning.

Modifiers layer on top of the base rule. Minimum order quantity enforces a supplier or press minimum. Maximum order quantity caps a single order, often for shelf-life or capacity reasons. Multiple or increment rounds up to a pack, pallet, or bar length. Order these correctly in your head: the base rule computes a raw quantity, then minimum, maximum, and multiple adjust it. Misconfigured modifiers are a leading cause of MRP suggestions that look absurd, such as a 5,000-unit order for a part needing 12.

Lot sizing choices ripple into capacity. Larger lots reduce setup frequency, which increases effective capacity at a bottleneck, but they inflate work in process, lengthen queue time, and delay problem detection because defects are discovered a full lot later. This is why lean environments push toward lot-for-lot and setup reduction rather than optimizing lot size against a fixed setup cost. The setup cost in the economic order quantity formula is treated as a given, when in many plants it is the thing most worth attacking.