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The conventional Economic Order Quantity (EOQ) lot‐size model ignores the effects of damage costs. While producing an EOQ lot, the inventory may go “out of control”. An extension of the EOQ production model based on damage costs is presented and the relevant costs of damage and their effects on stockholding costs are discussed. A new EOQ formula including damage costs is developed and a comparison between the conventional concept and the new concept based on annual total cost is made. The analysis shows that, if the costs of damage to stock are taken into account, the computed EOQ is smaller, and the conventional EOQ is not the optimum solution.

The concept of zero inventory (ZI) is a powerful tool to improve production economics. The major factor in ZI is set‐up cost reduction. Examines what will happen when set‐up costs are stationarily and non‐stationarily reduced by mathematical presentations and simulation. The results are useful for real practice. Zangwill observes that reducing set‐up costs need not decrease inventory by a special example of non‐stationary cases. Likewise, set‐up cost reduction need not decrease total production and inventory costs. By using simulation, obtains results contrary to Zangwill. Most presentations of set‐up cost reduction consider the stationary case. It is hard to find the degree of cost variations by mathematical models. Thus uses a mathematical approach and a few simulation results that varying set‐up costs are provided. Reduces set‐up costs stationarily and non‐stationarily to examine the effects on total costs and total holding costs.

Edmund Burke, the 18th century Irish orator said … ‘those who propose change should work hard to persuade a rational man that innovations or reforms would not end in damage or absurdity’.