To the editor:
The initial focus of the April 1997 "Back To Basics" column is on capacity. While setup time can subtract from available production time, the options for setup time reduction are quite limited. After master schedule orders are received, the only setup option is to make use of "Family" or combination setups to reduce total setup time. However, any such savings can be easily negated by excess inventory or delayed shipments. For scheduled demand, there are no other setup options. For immediate demand, the economic order quantity (EOQ) not only minimizes the outgoing cost, but also minimizes the setup time total for the master schedule.

It must be remembered that, in the average shop, an equipment classification will show that less than 10 percent of the equipment is totally loaded. Setup time is not a significant, controllable capacity element. It is a significant order quantity factor.

The article also makes a setup calculation. The calculation is invalid for use with the original EOQ formula. The parameters of the formula elements were established by the formula developer and cannot be changed without voiding the application of the formula. Briefly, as established originally, setup costs are incurred before any production and are fixed in size. Holding costs ("K") are the opposite: "after" and "variable." As both formula elements are overhead items, no overhead is to be added to either.

—Robert L. VanDeMark
VanDeMark Products

Author's response:
The first point that you raise pertains to the importance of setup time and the opportunities for improvement. Setup time has attracted a great deal of attention because, even though it may not be that great, its impact is not felt on average but rather at specific points in time. When a setup occurs, at that time, the capacity must be diverted from production to setup. For example, over the period of a week, a two-hour setup may not account for that great an amount of time used. However, for that specific day, the impact is going to be fairly important.

It has been my experience that there are numerous opportunities for setup reduction, especially given the definition of setup times that I used. This broader definition allows me to capture the indirect activities frequently associated with setup times but ignored by the more traditional definitions of setups. It also allows me to capture the impact of adjustments and of searching. It is these opportunities that most setup reduction programs target.

In applying the EOQ formula, I have used it in the way that most textbooks have applied it. You state that the parameters cannot be changed without voiding the application of the formula. On this point, I have two reactions. The first is to note that setup times are only fixed in the short term. They can and are changed in the long term, provided that management invests the necessary time and effort. The second is to recognize that there are very few situations in which we can use the EOQ as initially developed.

Finally, the purpose of the article was to get users aware of the issues associated with the EOQ. It is not possible to cover all of these issues in a 1,500-word article. However, with feedback such as that provided by Mr. VanDeMark, we can learn what elements should be present in such an article.

—Steven A. Melnyk
Professor of Operations Management
Michigan State University

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