What are the best practices for using MRP to size lots?

1 Use dynamic lot sizing methods

Dynamic lot sizing methods adjust the lot size according to the demand pattern and the cost parameters. They aim to minimize the total cost of ordering, holding, and setup. Some of the common dynamic lot sizing methods are the economic order quantity (EOQ), the economic production quantity (EPQ), the lot-for-lot (L4L), and the least total cost (LTC). Each method has its own advantages and disadvantages, depending on the situation. For example, EOQ and EPQ are suitable for stable and predictable demand, while L4L and LTC are more flexible for variable and uncertain demand.

2 Consider the lead times and safety stocks

Lead time is the time between placing an order and receiving it. Safety stock is the extra inventory that is kept to protect against unexpected demand or supply fluctuations. Both lead time and safety stock affect the lot size and the inventory level. If the lead time is long or variable, the lot size should be larger to avoid stockouts and delays. If the safety stock is high, the lot size should be smaller to reduce holding costs and waste. MRP can help to estimate the lead time and the safety stock based on the historical data and the forecast accuracy.

3 Balance the inventory turnover and the service level

Inventory turnover is the ratio of sales to average inventory. It measures how efficiently the inventory is used to generate revenue. Service level is the percentage of customer orders that are fulfilled on time and in full. It measures how well the inventory meets the customer expectations. Both inventory turnover and service level are important indicators of the performance and profitability of a manufacturer. MRP can help to balance the inventory turnover and the service level by adjusting the lot size and the reorder point. The lot size should be large enough to achieve a high service level, but not too large to reduce the inventory turnover.

4 Apply the ABC analysis

ABC analysis is a method of classifying the inventory items based on their value and importance. The items are divided into three categories: A, B, and C. A items are the most valuable and critical, B items are the moderately valuable and important, and C items are the least valuable and trivial. MRP can help to apply the ABC analysis by assigning different lot sizing methods and parameters to each category. For example, A items may use a more precise and frequent lot sizing method, such as L4L or LTC, while B and C items may use a simpler and less frequent lot sizing method, such as EOQ or EPQ.

5 Review and update the lot sizes regularly

Lot sizes are not fixed and static. They should be reviewed and updated regularly to reflect the changes in the demand, the cost, and the environment. MRP can help to review and update the lot sizes by providing timely and accurate information on the inventory status, the production plan, and the purchase orders. The lot sizes should be revised based on the actual and projected demand, the current and expected cost, and the market and competitive conditions.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?