Lean Thinking: Better Living Through Setup Reduction

Abstract

This note reviews the effect setup time, batch size, and throughput time have on each other by providing everyday examples. Excerpt UVA-OM-1501 Jul. 29, 2013 LEAN THINKING: BETTER LIVING THROUGH SETUP REDUCTION Lean transformation typically involves the reduction or elimination of inventory. In a given system, inventory can function as a hedge against demand variability, quality variability, or equipment malfunction. Inventory can also take the form of batches of work in progress. The smaller the batch, the more flexible and responsive a business can be. The “ideal” batch size is a single unit, but in practice, such batching tends toward prohibitive setup costs and insufficient output capacity. So the size of an optimal batch is inversely proportional to the cost and duration of its required setup. For almost 100 years, the economic order quantity (EOQ) formula has been used to calculate a given batch's tradeoff between holding and setup costs. But in the 1940s, Taiichi Ohno, founder of the Toyota Production System, realized that reducing setup times by changing the system achieved better results than optimizing a system that may be inherently inefficient. As setup costs decline, so does EOQ; that is, if the goal is to reduce rather than optimize inventory, setup reduction can be viewed as an investment. To understand setup reduction, one must understand the interaction of setup time, batch size, and value delivery. . . .