Optimal Strategies for Investment in Setup Cost Reductions in a Just-in-Time Environment
Setup cost reductions in a Just-In-Time environment typically allow for reduced inventories, increased capacity, and greater flexibility because of the resulting reduced lot sizes. This study is a detailed analysis of investing in a one-time cost to reduce the setup cost (and time) in the classical (Wilson) economic order quantity lot-size model. A present value approach is employed and the number of periods required to recoup the initial investment is derived.
KeywordsCash Flow Concave Function Order Quantity Setup Cost Economic Order Quantity
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