Hence a lot sizing model that can incorporate the effects of setups on the dynamics of the production system directly, without the need for cost parameters that are difficult to estimate, is very desirable.
The work in this paper differs from most previous lot sizing models in its explicit representation of throughput as a function of average WIP, number of lots and lot size.
Setup cost is not explicitly considered since the costs of setup decisions are directly captured in the performance measures of the system.
Our model can easily be modified to account for incremental, direct costs of setups, such as those arising from scrap, if necessary.
We envision this model being used in tactical decision making, where a firm may want to update its lot sizes in the face of changing demands and product mixes over time.
Frequent changes in manufacturing lot sizes at very short intervals are clearly difficult to implement in practice, and hence are not considered.