Operations Manager: POQ
Production economics may dictate the use of lot-sizing in MRP systems but the EOQ rarely works very well. The problem is that the EOQ is based on the assumption that demand is continuous and uniform. In MRP systems, demand for component parts tends to be “lumpy,” that is, discontinuous and nonuniform, with frequent periods of zero demand. When the EOQ is applied to lumpy demand, lot sizes usually don’t cover whole periods of demand. The result is that unnecessary inventory is often carried during the periods following the receipt of a lot. This unnecessary inventory is called “remnants” because it is left over from previous lots. The period-order-quantity (POQ) model was designed to avoid remnants and give lower costs with lumpy demand.