Small vs. Large Lots: Advantages & Disadvantages

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  • 0:01 Small Lots
  • 0:44 Large Lots
  • 1:27 Advantages of Each
  • 3:06 Disadvantages of Each
  • 4:52 Lesson Summary
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Lesson Transcript
Instructor: Yuanxin (Amy) Yang Alcocer

Amy has a master's degree in secondary education and has taught math at a public charter high school.

Companies sometimes choose small lots at times and large lots at other times. Want to know why small lots can actually help a business at times while hurting another business at the same time? Find out in this lesson.

Small Lots

This is Deena. She is the owner of a small flower shop. She specializes in designing wedding bouquets that match the bride and groom's wedding colors. She makes her bouquets in very small lots. A small quantity of products is a small lot. She sticks to her small lots because her products are very unique. Each bride and groom has their own unique likes and dislikes. Deena creates a unique bouquet for each wedding, so she has a small lot size of one for her bouquets. All the couples that have used Deena for their wedding bouquets have been very satisfied. This is all because Deena uses very small lots to fulfill her orders.

Large Lots

On the other hand, the fictional business Floral Supplies, where Deena buys her floral foam and other floral supplies, makes its products in large lots. A large lot is a large quantity of products. For example, when Floral Supplies makes its floral foam, it makes it in a large lot of 2,000 pounds. Floral Supplies sells its floral foam in half pound packages. So, 2,000 pounds gives Floral Supplies 4,000 salable products. Floral Supplies has satisfied customers like Deena because it makes its products in large lots.

Do you want to know why? Let's look at the advantages and disadvantages of small and large lots, and we will see.

Advantages of Each

Small lots have the advantage of being very customizable. For businesses that operate on a pull system, where products are made after they are purchased, small lots are the norm. These customized products are not usually sold by the hundreds or thousands. They are usually sold as a single item or a couple. Another advantage of small lot sizes is it cuts down on required storage space and practically eliminates waste, especially when products are produced after they are purchased. Yet another advantage is that small lots don't require much money to get started. In fact, the customer generally pays for the product before you even make it. As you can see, small lots are perfect for Deena because she makes each item individually after they are sold.

Large lots have the advantage of being cheaper to make. It is always cheaper to make products in bulk. Another advantage of large lots is that when you do get an order, you can ship the product to the customer right away because the product is already made. You don't have to wait until you make it. Yet another advantage of large lots is that all your items will have the same quality level. Each item in a large lot will look and work just the same as all the others. Large lots are ideal for businesses that operate on a push system where products are made before they are sold. For example, Floral Supplies, where Deena purchases her floral foam, has a retail store. Floral Supplies needs to make its products in bulk so it can keep its shelves stocked. All the products have to be finished and ready to send out, or in the case of a retail store, ready for the customer to grab and go.

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