Lot-for-lot ordering in MRP provides coverage for some predetermined number of periods. True False
The correct answer and explanation is :
Correct Answer: False
Explanation:
Lot-for-lot (LFL) ordering in Material Requirements Planning (MRP) does not provide coverage for a predetermined number of periods. Instead, it strictly aligns order quantities with actual demand for each period.
Understanding Lot-for-Lot (LFL) Ordering
Lot-for-lot ordering is an inventory management strategy where the order quantity is set exactly equal to the demand for each period, ensuring there is no excess inventory. This means that if demand fluctuates from period to period, the order quantity will fluctuate accordingly.
Key Features of Lot-for-Lot (LFL) Ordering:
- No Carrying Inventory: Orders are placed only when needed, reducing storage costs.
- Matches Demand: Each order quantity equals the net requirements of that period.
- Frequent Orders: Since orders are placed only when demand arises, order frequency can be high.
- No Predetermined Coverage: Unlike other ordering methods (e.g., Fixed Period Ordering or Economic Order Quantity), LFL does not plan for multiple periods in advance.
Why the Statement is False
The statement suggests that lot-for-lot ordering covers a predetermined number of periods, which is incorrect because:
- Lot-for-lot does not aggregate demand over multiple periods.
- It generates separate orders for each period’s requirements.
- Other MRP ordering techniques, such as Fixed Period Requirements or EOQ-based ordering, are designed to cover multiple periods.
Conclusion
Lot-for-lot ordering is useful for minimizing excess inventory and keeping storage costs low, but it does not provide coverage beyond the immediate period’s demand. Hence, the statement is false.