Question

Why would a company use lot-for-lot inventory ordering rather than economic ordering quantity (EOQ) method?

Answer 1

A Thumbs Up! Would be really helpful for me. If you have any questions, please leave a comment and I will get back to you as soon as possible. The main reason why a company would use a lot for lot inventory ordering rather than an economic ordering quantity method can be economic or seasonal fluctuations. At the time where demand is uncertain, and where the market and supply are near to the warehouse, or when the producer has only one warehouse or limited space, it would be beneficial for the producer to use a lot to lot inventory ordering instead of economic order quantity.

When such thing happens, the producer or company tries to use not for lot inventory ordering or discrete order quantity method instead of economic order quantity method, since it would be easier and convenient for the producer since the order processing time for the product would be less because of nearness to the market.

At the time when demand is uncertain and is highly versatile if we choose economic order quantity over any other method, then there are chances that the inventory would be left underutilized because of increased chances of the low level of demand. At the times where we cannot properly forecast the demand due to some superficial factors, we should not maintain a constant stock as in the economic order quantity method.

In such a situation, a lot for lot inventory ordering would be better than the economic order quantity method, and the company would use it because of that.