Journal of Management Research
Year : 2000, Volume : 1, Issue : 1
First page : ( 38) Last page : ( 46)
Print ISSN : 0972-5814.

Effect of setup cost on inventory and service level

Dr. Gupta H D

Faculty of Management Studies University of Delhi, Delhi.

Abstract

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.

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Keywords

Setup Cost, Service Level, Inventory, Safety Stock.

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