Question

# What impact does reducing setup time have on the Economic Order Quantity? For full credit you...

What impact does reducing setup time have on the Economic Order Quantity? For full credit you must submit at least 5 separate postings. Points will be awarded for quality content, specific references, thorough answers to the question, and professional business writing style. Minimum of 50 words per posting. At least 2 of your 5 postings must be comments on other writers' postings. Your postings may address any number of the topics listed below for this forum.

The formula for Economic order quantity is - EOQ = sqrt (2DS /H) where D is annual demand, S is setup time and H is holding cost. As we can see EOQ is a direct function of sqrt (S), when S decreases the EOQ decreases. The decrease in setup cost decreases the cost per order and encourages firms to place more and smaller orders, and thus decreases the EOQ.

Example = D = 4900 , S = 49 , H = 1

EOQ = sqrt(2*D*S/H) = sqrt(2*4900*49/1) = 693

Let's assume S drops to 36  D = 4900 , S = 36 , H = 1

EOQ = sqrt(2*4900*36/1) = 594 (Decreases)

Now the number of orders is D / EOQ , when EOQ decreases it means we order EOQ quantity more frequently.

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