If you check the Adequacy check box under the Create tab, all the parts that use lot sizing rule F (Fixed quantity) will be reviewed to check whether that lot sizing rule is the most adequate one for each part. This check (control) is based on how much the part's consumption has fluctuated during the last 12 months, or as long as the part has existed and has been used in the system. This means that if the part has only existed in the system for 4 months, the analysis will only use the consumption during those months as a basis.
The list that is created after the calculation will show a red exclamation mark (!) on those parts that the system believes that the lot sizing rule may not be adequate and should be revised. In order to perform this type of lot sizing rule analysis, you must have been using MONITOR for some time, so that there is sufficient data as a calculation basis for this check.
Why Use Adequacy Checks?
If a part has a very large consumption fluctuation or variance, huge portions of the purchased or manufactured quantity will be held in storage for a long time. Imagine that you have the following consumption for a particular part during 12 months:
Let's say that this part uses lot sizing rule F and has an EOQ of 800 pieces. The holding time (time held in stock) for this part would average 2 months. For this kind of part, it would be more appropriate to use a lot sizing rule that is more period-oriented, such as L (Lot-for-lot) or P (Period requirement).
For example, let's look at a part that uses lot sizing rule P, with a period length of 1 month. If you used that lot sizing rule instead, your holding time would decrease to an average of 2 weeks instead. If your ordering costs are not too high, there is great potential to reduce costs, particularly for parts that have a high value or standard price.
Large Variance
The system calculates a value for your consumption variance or fluctuation, which can be used to compare the variance for different parts. If you fall below a control value, the part is not considered to have such a large variance in its consumption to justify discarding the lot sizing rule F just for this reason. However, if the part has a larger value than our standard value, the system considers that the lot sizing rule F may not be appropriate and should be questioned.
We have reached this limit value for what could be considered a "large variance" by calculating the average storage cost for a part. If you have a larger variance than our standard value / guideline value, your storage costs will increase considerably.
The formulas we have used are:
where 
is the average consumption during the period.
where Est. var D is the consumption variance
where VC is the comparative figure for the variance.
The definition of "large variance" would therefore be VC > 0.20. If VC is greater than 0.20, the lot sizing rule F is questionable. If VC < 0.20, the Fixed quantity may still be appropriate.
Example 1
A part with a consumption according to the above table would give the following calculation:
= (1/12)x(200+60+10+300+800+40+10+0+450+250+16+80) = 184,7
Est. var D = (1/12)x(2002+602+ … +802) -184,72 = 53140
VC = 53140/184,72 = 1,56
VC > 0,20 and this means that the system would warn against the adequacy of using lot sizing rule F.
Example 2
If the part has the following consumption the last 12 months instead:
=(1/12)x(50+60+45+55+70+80+55+45+75+65+80+50) = 60,8
Est. var D = (1/12)x(502+602+ … +502) -60,82 = 157.5
VC = 157.5/60,82 = 0,04
VC < 0,20 this means that you cannot just reject the lot sizing rule F only due to the consumption variance.
The chart below shows how your storage costs increase with increased variance. The standard value / guideline = 0.20.
Conclusion
When calculating EOQ, the system will issue a warning for those parts that have a large variance in their consumption, which may indicate that it may be necessary to question the adequacy of applying that lot sizing rule. It may be more adequate to use a more period-oriented lot sizing rule, considering the storage costs.
Note: The formulas and definitions were taken from the book Operations Research by Wayne L. Winston (1994).