For a given component in an MRP plan, under lot-for-lot ordering, planned order size are equal to net requirements. True False
The correct answer and explanation is :
Answer: True
Under lot-for-lot (L4L) ordering in a Material Requirements Planning (MRP) system, the planned order size is always equal to the net requirements for each period. This is because the lot-for-lot approach schedules orders exactly when they are needed and in the exact quantity required, without carrying excess inventory.
Explanation
- Definition of Lot-for-Lot (L4L)
- The Lot-for-Lot (L4L) ordering policy is a technique used in MRP where the order quantity is set to match the net requirements for each period.
- It avoids carrying excess inventory and ensures that materials are ordered and received just in time for production.
- Net Requirements in MRP
- Net Requirements = (Gross Requirements) – (On-hand Inventory) – (Scheduled Receipts)
- This means that if a component has a demand of 100 units in a given period and there is no available inventory or scheduled receipts, the planned order will also be 100 units.
- How L4L Works in an MRP System
- Suppose a company needs 200 units of a component in Week 4 and 150 units in Week 5.
- If no safety stock or existing inventory is available, the system will create a planned order release of 200 units in Week 4 and 150 units in Week 5.
- The order size is always equal to the net requirement.
- Advantages of Lot-for-Lot
- Minimizes inventory holding costs since only the required quantity is ordered.
- Reduces waste and prevents excess stock accumulation.
- Ensures fresh stock availability, particularly useful for perishable goods.
- Disadvantages
- Frequent orders may lead to higher ordering and setup costs.
- It might not be optimal for bulk discounts or economic order quantities.
Conclusion
Since the planned order size under lot-for-lot ordering is exactly equal to the net requirements, the statement is True.