Lot Sizing

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What is Lot Sizing?

Lot sizing entails calculating the quantity of an item manufactured at one time. Lot sizing is the process of unifying the calculated net requirements by a specific unit while considering cost reduction and work efficiency. It impacts product availability, setup and ordering costs, and capacity requirements. 

Significance of Lot Sizing in E-commerce

The lot sizing technique allows e-commerce businesses to select the best time and volume of goods production. Here are some added benefits of using the lot-sizing technique in e-commerce:

  1. Reduce inventory costs: By using accurate lot sizes, you require optimum inventory, which requires less working capital, storage space, staff, and costs.
  2. Ensures quality: Calculating lot sizes accurately ensures a better quality of products. For instance, a small lot size reduces system variability and assures consistent production.
  3. Ensures less wastage: Accurately estimating your lots will help you avoid the wastage of products and reduce waste. This holds true for perishable goods. 
  4. Ensures faster delivery: When your lot size is accurate and large, you can ensure faster delivery of products. With a large lot size, you do not have to wait for long delivery timelines as your product is ready to be shipped.

Prerequisites for Lot Sizing and How It Works

One of the prerequisites for calculating lot sizing is Material Requirements Planning (MRP). It is a software-based system that allows companies to know the following data:

  • What items are required for production
  • How many items are required
  • When are these items required

Industrial companies use three lot sizing procedures to calculate lot sizing:

  1. Static lot sizing: Placing a fixed order quantity or only what is necessary to satisfy anticipated demand is known as static lot sizing.
  2. Periodic lot sizing: Periodic lot sizing collects requirements within a given time frame. 
  3. Dynamic lot sizing: In dynamic lot sizing, to determine the best order quantities, the total expected demand across the full-time horizon is taken into consideration

Use Case With Lot Sizing

A company orders 500 notepads, representing a year’s estimated consumption, but is informed that the most cost-effective print run is 700 notepads. Because lot size and setup costs are reduced, the company orders 700 notepads at a lower cost. 

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