- The model is used to examine the effect of shortage penalty on the optimal lot size,
- when the model reflects job queuing dynamics arising from the lot size decision.
- A coordinated policy of safety stock adjustment and lead time reduction through lot size adjustment is shown be more efficient than responding to changes in the shortage penalty parameter solely through adjustment of safety stock.
Since the introduction of the venerable EOQ
model, the study of process lot sizing has been
conducted under a paradigm of trade-offs between
process setup costs vs. inventory carrying costs. A
small number of authors have addressed an
alternative paradigm, in which the primary issue
related to setup frequency is not so much a matter
of setup cost, but rather, consumption of available
process time. The basic motivation is that the
marginal cost of an additional setup is often quite