Lot Size

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  Have you ever heard the question, what lot size should we order?  Or, what’s the lot size of the inventory?  In this lecture we will demystify this question and provide some clarity on what a Lot Size is.

  Formally defined, Lot size refers to the quantity of an item ordered for delivery on a specific date or manufactured in a single production run.  The size of the lot can vary significantly and is typically determined by demand but is usually adjusted to a higher quantity so that purchasers can take advantage of volume discounts when purchasing or manufacturing.  Also, in general higher lot sizes also result in less expensive transportation costs.  In other words, lot size basically refers to the total quantity of a product ordered for manufacturing.  Put another way, the lot size is the amount of a good produced or purchased at one time.
Example:

• When we buy a pack of six sodas, it refers to buying a single lot of 6 sodas.

Lot Sizes and Lean:

• Lot size is an important topic in lean manufacturing.  You see, larger lot sizes and high setup costs typically drive batch production and ‘push’ inventory along.  Here is an example.  Let’s say that a salesman would like to make 250 business cards that he can hand out.  He assumes that he will use all 250 in a year.   He later finds out from the card vendor that the most economic print run is 1000 cards.  The setup cost causes four years of inventory to be manufactured, and it is very likely that the cards will be lost, damaged or the information on the cards will need to be changed and updated in a year.  Reducing the lot size and setup costs allows smaller batches to be produced and creates a system where items are pulled through the manufacturing process rather than pushed.  Remember, a smaller lot of production is an important part of many lean manufacturing strategies.  One piece flow implies a lot size of one.  Likewise, single piece flow suggests a lot size of one single piece is what will flow forward.

Challenge:

• Let’s say you have a pallet of 100 items.  Each item is individually wrapped but ships as a pallet.  What lot size will you ship if you ship one pallet and how did you come up with your answer?  Share your thoughts in the community, comments or upcoming assignments and receive a coupon for one of Lean Strategies International LLC's Training Courses.

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