The economic lot size and relevant costs

In many accounting textbooks it is strongly argued that decisions should always be evaluated on relevant costs; that is variable costs and opportunity costs. Surprisingly, when it comes to Economic Order Quantities or Lot Sizes, some textbooks appear to be less straightforward. The question whether described EOQ-models are in fact based upon variable costs and opportunity costs is generally not explicitly dealt with. This paper will investigate relevant costs if lot sizes in a components manufacturing plant are changed. The nature of opportunity costs is examined and several kinds of (semi-)variable costs regarding the use of (infrastructural) capacity and material flow are discussed. In this manner, it is shown that in EOQ-models sunk costs are always included. It also occurs that variable costs must be analyzed carefully. This is also the case for more advanced models as described by for instance Wagner and Within or Bertrand. Opportunity costs are in fact neglected, which nevertheless is not always that dramatic as some authors suggest

Production control in engineer-to-order firms

During the last decade many engineer-to-order firms have tried to implement MRP II systems, however, the little or no success. The choice of a MRP II system is often based on the wide availability of MRP II software and the fact that the exact reasons why this software is not suitable for engineer-to-order firms are not understood. Therefore, the many implementation failures are not surprising. In the first part of this paper we will discuss the main differences between engineer-to-order manufacturing and the make-to-stock manufacturing (which was the basis for the development of MRP II software). Important characteristics of the engineer-to-order situation are: the important role of the customer order, the customer-specific product specifications and the product and production uncertainty. These characteristics of the engineer-to-order production situation differ substantially from the basic assumptions of MRP II. An engineer-to-order situation thus asks for a completely different production control system. In the second part of this paper we will present a production control framework which better suits the specific characteristics of the engineer-to-order situatio