Low inventory carrying cost and fixed set-up drive excessively large lot sizes. By examining the EOQ formula, we can see why. Set-up is a variable and can be reduced through process change. Because it is the numerator, a smaller set-up lowers the EOQ. When Ohno reduced set-up from 2 1/2 hours to three minutes, the EOQ was cut by 86 percent. Recent case examples indicate that this proportion of reduction is often achieved through a set-up reduction program. Simple interest
rates are currently below 5 percent. When obsolescence, breakage, material handling, facility (heat, light and building) and other costs are included, the real cost of inventory is typically 20 percent to 36 percent. This number is in the denominator, and a smaller number increases lot size. When the higher number is used, EOQ is reduced by more than 50 percent.