Question

what impact does reducing setup time have on the Economic Order Quantity? explain in short paragraph form

Answer 1

When we reduce the setup time, it impacts the overall system by reducing the cost factor. We know that the economic order quantity is represented by the square root of the product of demand and ordering cost divided by the holding cost. Since the setup cost is reduced, we would also see a reduced ordering cost> If the demand stays constant, we would get a lower value of economic order quantity to satisfy the optimal requirement of the company and therefore, reducing the setup cost is a helpful process for the company implementing and form of lean methodology.