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About lot sizing

There is a lot of literature about the lot sizing techniques, starting from 1913 when Thomas Harris invented the economic order quantity locution. The EOQ wants to be a scientific concept, a quantity determined minimizing a cost function. The cost function take into account, in the original formulation, the stock keeping costs and the ordering costs for the new order.The EOQ formula is explained in every operations management book and is taught in many university courses, despite great conceptual limits in the problem formulation and the lean thinking movement.

The economic order quantity calculation is based on the availability of data which are difficult to collect and that vary with time, as the capital interest rate and the ordering cost. Moreover there are many simplifying hypotheses underlying the EOQ calculation. These make the formula simple and understandable but constrain its validity. Here are some of these limitations:
  • the formula consider a single item at a time, without a global optimization of the lots of the different manufactured or purchased items
  • the requirements of the considered item must be constant during time
  • the EOQ is calculated for orders the will be released in the future; for this reason the annual requirements considered in the formula should be the forecasted ones and forecasts, by definition, are wrong
  • every parameter in the formula is time-constant but it isn't in the real world
  • physical, technical constraints are not considered in the formula
  • But the most radical criticism to the economic order quantity concept has been moved by the lean production movement. The EOQ formulations considers input data and computes a result. But these data are not immutable. They are variables that can be managed to achieve a "one piece flow", an EOQ that equals one. And reaching this brings much more benefits than using a generic EOQ.