Setup Reduction in the Economic Production Quantity Model

Abstract

We present an analysis of setup cost reduction using the economic production quantity model. The objectives of the paper are to draw conclusions by investigating several classes of setup reduction functions and to provide a general solution procedure. We examine the trade-offs between reduced inventories and increased capital investment and show that given any hypothetical setup cost reduction function, we can determine whether the total relevant cost can be reduced and how the reduction is achieved.Subject Area: Inventory and Production/Operations Management.

An integrated vendor–buyer inventory model with backorder price discount and effective investment to reduce ordering cost

“…We note that these particular functions are consistent with the Japanese experience reported in Hall (1983) and have widely been used in literature to formulate various investing options (see, Porteus (1985), Porteus (1986); Keller & Noori, 1988;Nasri et al, 1990;Kim et al, 1992;Paknejad et al, 1995).…”

“…In the literature, Porteus (1985) first introduced the concept and developed a framework for investing in reducing EOQ model setup cost. The framework he proposed has encouraged many researchers to examine set-up/ordering cost reduction (e.g., Keller & Noori, 1988;Kim, Hayya, & Hong, 1992;Nasri, Affisco, & Paknejad, 1990;Paknejad, Nasri, & Affisco, 1995). We examine two continuous review integrated inventory models in which the buyer offers backorder price discount to the patient customers with outstanding orders during the shortage period to secure customer orders, and analyze the effects of increasing investment to reduce the ordering cost.…”

Controlling setup cost in (Q, r, L) inventory model with defective items

“…Billington [9] presented an EPQ model with the setup cost parameter replaced by a function of capital investment. A lot of studies such as Nasri et al [10], Kim and Haya [11], Hall [12], Paknejad et al [13] and Sarker and Coates [14] have been done on the related researches. Wu and Ouyang [15] examined the effect of defective items on a mixture of backorders and lost sales inventory model.…”

Extend (r, Q) Inventory Model Under Lead Time and Ordering Cost Reductions When the Receiving Quantity is Different from the Ordered Quantity

“…Nasri et al (1990) investigated the effects of setup cost reduction on the EOQ model with stochastic lead time. Kim et al (1992) presented several classes of setup cost reduction functions and described a general solution procedure on the EPQ model. Paknejad et al (1995) presented a quality-adjusted lot-sizing model with stochastic demand and constant lead time and further studied the benefits of lower setup cost in this model.…”