Faculty of Management Studies University of Delhi, Delhi.
In a batch-manufacturing situation, a reduction in setup cost results in higher marginal reduction in working stock, total variable cost, and safety stock. It also increases the average annual service level. It makes strong economic sense to reduce setup cost from the existing level to the minimum possible level, as each successive reduction brings in higher savings. When setup cost approaches zero, there is a marked reduction in inventory and total variable cost.
Setup Cost, Service Level, Inventory, Safety Stock
