A cheaper purchase price can produce a more expensive inventory policy

Constant annual demand is a poor description of a garment maker preparing discrete orders, style launches or institutional deliveries. A fabric requirement can be large in one production week, absent in the next and revised when a confirmed order changes. Material requirements planning explodes and nets those dependent requirements by date; fixed-horizon lot-sizing methods then decide which requirements to combine into receipts.[S04][S07] An annual EOQ applied to the total can hide the very timing that determines whether stock is useful.

Lot-for-lot ordering places a receipt for each positive net requirement. It minimises cycle stock under a convention of immediate availability, but can create many ordering and receiving events. Fixed-coverage methods combine a chosen number of future periods. Finite-horizon optimisation instead evaluates alternative combinations of orders and holding across the stated schedule. The useful comparison holds demand, initial stock, order cost, holding convention and service constraints constant.[S04]

The following constructed schedule demonstrates that comparison. Demand over six periods is 100, 0, 180, 60, 240 and 80 units, totalling 660. Initial stock is zero, receipts occur at the start of a period, demand is consumed during it, and holding is charged on end-period stock at an illustrative XAF 100 per unit-period. Each order costs an illustrative XAF 20,000. Shortages are prohibited and no capacity, pack or cash constraint is applied in this first comparison.[S04]

Exhibit 25 reports the resulting receipts, costs and terminal stock. The finite-horizon optimum was found by enumerating every possible next-order point in a dynamic programme. It happens to match the two-period coverage rule in this constructed case; that coincidence is not a general recommendation for two-period coverage.[S04]

The illustrative fixed-lot policy purchases 900 units to cover 660 units of demand and ends with 240 units. Its ordering plus holding cost cannot be compared fairly with the other rows without valuing that residue. A reusable standard input may retain useful value, while a revised logo fabric or incompatible shade lot may have little approved recovery. The single-period framework makes overage, salvage and disposal explicit, so terminal stock must enter the objective rather than disappear at the horizon.[S06][S09]

The table also shows why fewer orders are not automatically better. Moving from lot-for-lot to three-period coverage reduces illustrative ordering cost from XAF 100,000 to XAF 40,000 but adds XAF 76,000 of holding. The best combination depends on when stock arrives and remains, not on order count alone. A method selected because it produces a tidy calendar can be more expensive than a less regular schedule.[S04]

Real planning adds net requirements and receipt status before this lot decision. Usable stock, valid allocations and firm dated receipts must be reconciled once, with quarantined or incompatible material excluded. The versioned bill of materials determines which requirement belongs to which garment order.[S07] Lot sizing should then operate on the remaining dated need, not on gross annual consumption or a style total that conceals different material specifications.

An additional metre is not always an additional usable metre. Fabric can be tied to a construction, width, weight, colour, shade lot, print, logo and approved supplier. A revised specification can make a physically perfect roll unavailable for the next garment order. Material requirements planning depends on those item and version distinctions; aggregate stock value does not remove them.[S07]

Shade continuity creates a particularly important lot boundary. A factory may need enough material from one approved dye lot to complete a garment order without an unapproved variation. Buying a larger lot can support that continuity, but splitting requirements across incompatible lots can leave remnants that cannot be combined merely because their total metres look sufficient. The useful measure is accepted quantity by approved lot and requirement, not total fabric alone.[S07]

Roll remnants require the same treatment. The remaining length on each roll, its inspection status and its suitability for the marker or later approved style determine whether it can be consumed. Measured process loss and yield belong to the dedicated process-yield analysis. This chapter does not apply a universal fabric yield or assume that every remnant has a recovery route. It requires the lot calculation to preserve those physical and commercial exclusions.

Consider a separate illustrative minimum-lot decision. A supplier will sell only 1,000 metres at XAF 5,940 per metre, while the confirmed requirement is 760 metres. The full invoice is XAF 5,940,000 and 240 metres have no confirmed use, representing XAF 1,425,600 of unassigned purchase commitment. Dividing the full outlay by confirmed use gives XAF 7,815.79 per confirmed metre before any residual recovery. This is a decision-exposure ratio, not an accounting unit cost or a claim that all remaining fabric is worthless.[S03][S09]

That ratio can reverse the apparent discount even before annual holding is considered. It also shows why the recovery plan must name the actual later requirement. A generic assertion that the residue can be used someday supplies neither a date nor an approved specification. If an alternative style is genuinely approved, its demand, material compatibility, consumption date and recovery value should enter the scenario. If not, the residual remains an exposure rather than a fictitious asset with full value.[S06][S09]

Design revisions and obsolete logos make terminal risk lumpy rather than smoothly proportional to time. Routine carrying cost may describe storage and capital, but a revision event can change the usable quantity immediately. The model should keep that discrete event separate from the annual holding rate, consistent with the no-duplication rule. IAS 2 net-realisable-value assessment may later recognise a write-down, but that accounting outcome should not be used to predetermine the commercial recovery assumption.[S09]