Period order quantity (POQ) is a lot-sizing rule that fixes how often you order and lets the order quantity vary. You order every N periods, and each order covers exactly the net requirements of those N periods.
The number N comes from the economic order quantity. Convert the EOQ from a quantity into a length of time, round it to a whole number of periods, and that interval becomes the ordering rhythm. It is the reason POQ is often described as the EOQ expressed in time rather than in units.
Why it exists: EOQ assumes demand arrives at a steady rate. In MRP the requirements are lumpy, so a fixed order quantity leaves awkward remnants in some periods and shortfalls in others. POQ keeps the economic interval from EOQ but orders the actual requirement, which is what makes it fit MRP output.
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By using POQ, you can ensure that you are always ordering the right amount of products for your business, minimizing waste and maximizing efficiency. This will save you time and money in the long run and keep your customers happy.
Definition
Period order quantity is a lot-sizing technique under which the lot size equals the net requirements for a fixed number of periods. What is predetermined is the number of periods each order covers, not the number of units: the quantity is recalculated every cycle to match the requirements actually falling in that window.
That interval is derived from order and holding costs by way of the EOQ, so POQ keeps the cost balance EOQ was designed to strike while still ordering to real demand. It is the opposite arrangement to a fixed order quantity, which holds the units constant and lets the interval move.
Period Order Quantity Formula and Calculation
POQ (in periods) = EOQ / Average usage per period
Both inputs must be stated over the same period. Work in weeks and the answer is a number of weeks; work in months and it is a number of months. The result is then rounded to a whole number of periods, because you cannot place an order every 2.4 weeks.
Worked example
Take an item with an EOQ of 3,000 units and annual usage of 48,000 units, planned over a 48 week working year.
| Step | Working | Result |
|---|---|---|
| 1. Average weekly usage | 48,000 / 48 weeks | 1,000 units per week |
| 2. POQ in weeks | 3,000 / 1,000 | 3 weeks |
| 3. Order quantity | Net requirements of the next 3 weeks | Varies each cycle |
So an order is placed every third week, and each one covers the requirements of those 3 weeks. If the next three weeks need 900, 1,200 and 800 units, the order is 2,900 rather than a flat 3,000, and nothing is left stranded in stock.
The 48 week year in this example is a working year, that is 52 calendar weeks less an allowance for shutdowns and holidays. Use whichever figure matches your own calendar; using 52 here would give an average weekly usage of about 923 units and a POQ of 3.25 weeks, which still rounds to 3.
Disadvantages of Period Order Quantity
The period order quantity method has several drawbacks:
- Large Inventory Investment: Since deliveries are planned to cover extended periods, like a month or a quarter, it can lead to excessive inventory. To reduce this investment, more precise systems like material requirements planning or just-in-time can be used. However, this is less of an issue when unit costs are low.
- Demand Variation: Unexpected increases in demand towards the end of the period can cause stockouts. This can be mitigated by holding safety stock, although this raises inventory costs.
- Demand Termination: Continued deliveries can occur even if demand decreases or stops, due to a lack of tracking. Regular visual inspections by purchasing staff can help address this problem.
Lot Sizing Techniques
Period order quantity is one of the lot-sizing techniques. Other lot-sizing techniques are
- Fixed Order Quantity (FOQ)
- Economic Order Quantity (EOQ)
- Lot-For-Lot (L4L)
- Periods Of Supply (POS)
- Least Unit Cost (LUC).
- Least Total Cost (LTC)
- Part Period Balancing (PPB)
Choosing the proper lot-sizing technique is crucial because it affects inventory levels, capacity requirements, and ordering costs.
We know that Economic Order Quantity (EOQ) is a significant term in period order quantity.
What is Economic Order Quantity?
Economic order quantity is the absolute quantity an organization should buy to meet its demand while reducing many inventory costs like holding, shortage, and order costs. It is one of the techniques used in inventory management.
The EOQ formula is effective when the company’s demand, holding, and receiving costs stay constant.
The formula for the calculation of Economic Order Quantity is Q = the square root of (2DS / H)
Note that the whole expression 2DS / H sits inside the square root. Writing it as the square root of 2DS, then divided by H, gives a different and incorrect answer.
Here,
- Q = Units of EOQ
- D = Demand in Units (Annual basis)
- S = Order Cost (per purchase)
- H = Holding Cost (per unit, per year)
Click here for the Online Economic Order Quantity (EOQ) Calculator
Advantages of EOQ
- It helps the company to find out its optimal order quantity.
- It allows the company to manage its inventory efficiently.
- It helps reduce inventory costs by finding the exact order quantity in a specific period.
- It helps to avoid stock-outs by determining the reorder point.
- Calculating EOQ allows the company to make good decisions when ordering and managing inventories that increase overall efficiency.
Disadvantages of EOQ
- This concept makes assumptions. It assumes that the demand for the item will be sustained. But in reality, it is not possible. It also takes that the ordering cost for items and holding price per item remain constant for a whole year. However it is not controllable because packing and transportation charges may vary depending on the market situation, and rental may vary for holding items.
- This concept assumes that the inventory will be refilled as soon as it moves to production. But in reality, it does not happen. It takes time to fill out the order. Also, delivery dates vary due to seasonal-related issues.
- Hence there will be a chance of late product supply and sometimes overstock.
POQ vs EOQ: what is the difference?
POQ is derived from EOQ, but the two order in different ways. EOQ keeps the order quantity fixed and lets the timing float. POQ keeps the ordering interval fixed and lets the quantity match the actual demand in that interval, which is why it copes better with lumpy or uneven demand.
| EOQ (Economic Order Quantity) | POQ (Period Order Quantity) | |
|---|---|---|
| What stays fixed | The order quantity | The ordering interval (a set number of periods) |
| What varies | The time between orders | The order quantity |
| How it is set | Balances ordering cost against holding cost | Converts EOQ into a whole number of periods of demand |
| Best for | Steady, continuous demand | Lumpy or variable demand, common in MRP |
| Leftover stock | Can leave remnants when demand is uneven | Orders the exact demand for the interval, so little is left over |
FAQs
How does POQ contribute to overall supply chain efficiency?
By optimizing order quantities and timing, POQ helps reduce inventory carrying costs, minimize stockouts, and improve overall inventory turnover rates.
How can businesses determine the optimal POQ for their products?
Businesses can analyze historical demand data, ordering costs, and holding costs to determine the optimal POQ through trial and error or by using inventory management software.
Conclusion
Period order quantity fixes the ordering interval at a whole number of periods derived from the EOQ, then orders the net requirements that actually fall inside each interval. That combination is what makes it a better fit for MRP output than a flat EOQ, because MRP requirements are rarely level.
It is not free of drawbacks. A long interval commits inventory earlier than a shorter one would, demand that spikes late in an interval can still cause a stockout, and the rule keeps ordering on rhythm unless someone notices demand has fallen away.
The honest summary is that POQ suits items with reasonably predictable usage where the ordering cost is high enough to make frequent small orders wasteful. Where demand is genuinely level, plain EOQ is simpler; where it is highly erratic, lot for lot avoids committing stock you may not need.