Setup Reduction and Increased Effective Capacity

Setup reduction is an important aspect of the Just in Time (JIT) and Zero Inventory (ZI) concepts. This paper continues the study of the benefits of such reduction. Porteus (1985b) examined the tradeoff between investment in reduced setups and operating (holding and setup) costs. He later introduced a relationship between lot sizing and quality that identified benefits, due to improved quality, to be achieved by setup reduction. Investment in improved process quality was also considered in that article. This paper looks at the increased effective capacity that results from setup reduction. A certain amount of time, as well as expense, is required for each setup within a multiproduct firm. By reducing the time required for setups, less time is required to carry out those setups. That time can either be used to reduce lot sizes from artificially high levels caused by limited capacity or to reduce overtime used. We use an EOQ-like setting with stationary deterministic demand rates for each product. This simple model allows explicit solutions to be derived, not only for optimal setup time reduction, but for optimal overtime as well. Numerical examples illustrate the results.