The production of small lots (ideally one piece) is an important component of many strategies for Lean Manufacturing. The size of the lot has direct effect on scheduling and planning as well as on the cost of the same. Other effects are less obvious but equally important. The small batches reduce the variability in the system and level the production, improving their quality.
The effects of small batches differ between Make to Order (MTO) and Make to Stock (MTS), but are important in both situations. In MTO environments, the ability to make smaller batches economically makes it practical to accept smaller orders. This may open new market segments or eliminate intermediaries in the supply chain.
In an MTS environment, the small lots are translated directly into smaller inventories. Transport costs and inventory systems are significantly reduced. The small batches often allow the convertion from MTS to MTO.