Lot sizing in stochastic flow shops: striking the balance between capacity and flow

The performance of a real-life production system (as measured by, for instance, the average flow time of parts or the average work-in-process level) is impacted by a range of managerial decisions, among which the product mix being produced in the shop, the layout of the shop, and the lot sizing policies (also called batching policies) used on the shop floor. Insights on the relationship between these (often deliberate) choices and the resulting performance have high managerial relevance. The impact of lot sizing policies on flow times is particularly interesting to analyze: by setting lot sizes in a deliberate way, managers can obtain flow time improvements without radical interventions in the system, and without large financial investments. Two types of lot sizing decisions can be distinguished: process lots and transfer lots. As discussed in this paper, a well-considered choice of both enables management to strike a balance between capacity considerations and flow considerations. We discuss some essential differences in the rationale underlying the use of process versus transfer lots, and shed light on the trade-offs inherent in both types of lot sizing decisions.