Lot Sizing and Netting Logic
The netting sequence
Per item, per period, in order: gross requirements, scheduled receipts, projected available (with safety stock as a floor), net requirement, planned order receipts, planned order releases offset by lead time. Order matters. A lot size is applied to the net requirement, never to the gross, and the resulting receipt must cover the shortfall in the period it occurs.
Lot-size rules
Lot-for-lot orders exactly the net requirement: minimum inventory, maximum order activity. Fixed order quantity (FOQ) always orders the same amount and can leave leftovers. FOQ with an order multiple rounds up to the next multiple. Economic order quantity minimises ordering plus carrying cost but assumes fairly level demand. Period order quantity covers N periods of demand, where N ≈ EOQ ÷ average period demand, and handles lumpy demand better. Min/max reorders up to a maximum when projected available hits a minimum.
Worked example
Net requirement in week 4 is 130. The rule is FOQ 100 with an order multiple of 50. A single FOQ of 100 is insufficient, so the system orders 150 - two multiples - and 150 − 130 = 20 carries into week 5's projection. The multiple applies to the order quantity, not to the requirement.
Traps
Lot-sizing the gross requirement, which inflates inventory at every level. Forgetting to offset a planned receipt by lead time to derive the release date, especially across a period boundary. Applying EOQ to wildly lumpy demand. Ignoring the leftovers a lot size creates in the next period.