Question

True or False? The use of small lot sizes in lean operations is in conflict with the EOQ approach since setup costs tend to be significantly higher than holding costs.

Answer 1

The use of small lot sizes in lean operations can conflict with the EOQ approach since setup costs tend to be higher than holding costs. However, in lean operations, smaller lot sizes are preferred to minimize waste and improve efficiency.

Step-by-step explanation:

The use of small lot sizes in lean operations often conflicts with the EOQ (Economic Order Quantity) approach because the setup costs in lean operations tend to be significantly higher than the holding costs. The EOQ approach aims to minimize the total cost by determining the optimal order quantity that balances the setup and holding costs. However, in lean operations, where the focus is on reducing waste and improving efficiency, smaller lot sizes are preferred to minimize inventory and eliminate waste caused by overproduction.

Answer 2

The use of small lot sizes in lean operations is not in conflict with the EOQ approach, as it can be aligned with efforts to minimize waste, which is why the statement is false. The balance between achieving economies of scale and avoiding diseconomies of scale is also an important consideration for optimal production levels.

Step-by-step explanation:

The statement that the use of small lot sizes in lean operations is in conflict with the Economic Order Quantity (EOQ) approach because setup costs tend to be significantly higher than holding costs is False.

This is because lean operations emphasize minimizing waste, including the costs associated with carrying inventory, which aligns with the principles of EOQ when it is properly implemented with efficient setup processes. Lean operations are able to achieve low costs in both setup and holding by improving processes and utilizing technologies that allow for quick changeover times.

In the broader context of production, it's important to recognize economies of scale, which refer to the reduction in the cost per unit as the quantity of output increases, up until a certain point. Beyond this point, diseconomies of scale can occur, meaning the cost per unit increases due to the complexity and inefficiency of managing a very large operation.

This illustrates the balancing act between producing enough to gain economies of scale and not producing so much that diseconomies of scale are encountered.