ABSTRACT
This chapter explains manufacturers and their customers potentially have much to gain by using small-size lots. It reviews the factors relevant to lot-sizing decisions and traditional approaches for lot sizing and covers practical and economical issues which related to using small-size lots in procurement and shipping, and the role of lot-size reduction in continuous improvement. Most production efforts begin with setup, which includes, for example, mixing together ingredients before baking a pizza or preparing a machine before making a part. The two principal dollar costs associated with lot sizing are setup costs and holding costs. The chapter reviews some common analytical models for lot sizing of process batches and purchase order batches. Large work-in-progress inventory at every operation reduces the ability of a process to adjust to changes in products or demand. Reducing the size of purchase quantities requires reducing the cost of order placement and processing.
