THE EFFECTS OF NON-STATIONARY SETUP COST REDUCTION

One primary focus of Operation management has turned to setup cost reduction. Zangwill examines the effects of stationary setup cost reduction. He presents lowering setup costs should decrease total production and inventory costs with stationary setup reduction. Furthermore, we develop the effects of non-stationary setup cost reduction. Likewise as the amount of setup costs reduction increases the total production and inventory costs decrease with non-stationary setup reduction. Most presentations of setup cost reduction are descriptive with very few mathematical models. Using mathematical approach, we prove that total holding and setup costs will be reduced when non-stationary reduction of setup cost is increased. However, it need not necessarily lower total holding costs or total setup costs. Moreover, we develop the minimal reduction rate of total holding and setup costs by mathematical approach. Using simulation, we compute the range of reduction rate on total setup and holding costs, total holding costs and total setup costs to scrutinize mathematical validity.