You are a manager of a plant that is constrained by the market. That is, there are no internal machine constraints limiting your production. You have a choice to produce an order in either one lot of 1000 units or ten lots of 100 units each.
a. Explain how and why the choice of lot size affects the level of inventory in the form of WIP (work in process). Does this effect favor large lots or small lots?
b. The operations of the manufacturing process require a setup time for each new lot. How does this consideration affect the choice of lot size? Does it favor small lots or large lots?
c. Explain how and why the lot size affects the cash flow for the plant. Does this effect favor large lots or small lots?