What is Lot-for-lot?
Lot-for-lot is a lot sizing strategy in which orders are produced in exactly the amount required. Lot or run size in a materials requirement planning context equals the net requirements or demand for that period. Lot-for-lot manufacturing is usually done for expensive or perishable goods.
Significance of Lot-for-lot in Manufacturing
In lot-for-lot order inventory management, the projected product demand is always the same as the required product quantity. This helps businesses in the following ways:
- Inventory reduction: Smaller lot sizes require less inventory, reducing the requirement for capital, laborers and other costs associated with warehouses.
- Customer satisfaction: Responding quickly to demand shifts and proving to your customers that you are adaptable and responsive guarantees customer satisfaction.
- Attracting new customers: Lot for lot technique helps in meeting customer’s needs for customized items, ensuring that they will return and that you will stay ahead of the competition.
How Does Lot-for-lot Manufacturing Work?
The lot-for-lot process consists of the following steps:
1. The first stage in lot-for-lot order processing is determining the exact quantity of goods for a given time period.
2. The process’s second stage is to determine the time frame for which the product is required.
3. Create a product requirement plan so that the order quantity equals the required quantity perfectly.
4. Distribute the product.
Use Case of Lot-for-lot Manufacturing
Suppose Company XYZ deals with fruits and vegetables. Now, to reduce the inventory and holding costs, they use a lot-for-lot technique to order products. This way, they order only the required quantity by fulfilling customer demand.