What is Lot Sizing?
Lot sizing is the determination of how much to order or produce in a single batch when replenishing inventory.
Definition
Lot sizing is the set of rules and calculations used to decide the quantity of a purchase or production order, balancing setup and ordering costs against holding costs and constraints. Common policies include lot-for-lot (order exactly the net requirement), fixed order quantity, economic order quantity, and period-of-supply methods that group several periods of demand into one order. Lot sizing also respects practical constraints such as supplier minimums, pack multiples, shelf life, and machine batch sizes. The chosen policy strongly influences inventory levels, order frequency, and cost.
How Lot Sizing Works in ERP
Each item in an ERP carries a lot-sizing rule that the planning engine applies when MRP converts net requirements into planned orders. The system then adjusts the raw quantity for minimums, maximums, rounding multiples, and other constraints before suggesting the order. Choosing the right rule per item lets planners trade off order frequency, batch efficiency, and carrying cost.
ERP Vendors with Strong Lot Sizing
Oracle NetSuite
The original cloud ERP — built for fast-growing companies
Infor M3
Process manufacturing ERP for food, chemicals, and pharma
Epicor Kinetic
ERP built for manufacturers — from job shop to enterprise
SAP S/4HANA Private Cloud
Fully customisable managed-cloud ERP for complex enterprises
Frequently Asked Questions
What is lot-for-lot sizing?
Lot-for-lot is a policy where each planned order exactly matches the net requirement for that period, minimizing inventory carried between periods. It is well suited to expensive items or just-in-time environments where holding cost dominates. The trade-off is more frequent orders and potentially higher setup or ordering cost.
How do supplier constraints affect lot sizing?
Even after a lot-sizing rule computes a quantity, the ERP must reconcile it with real-world constraints such as minimum order quantities, order multiples or pack sizes, and maximum capacities. The system rounds and adjusts the suggested order to satisfy these. This ensures the planned order is actually executable with the supplier or production line.