Lean Manufacturing & Operations worked example

Setup Reduction Payback with total smed project investment of 7,500 $: a worked example

This worked example runs the setup reduction payback numbers for a tougher week than the baseline: total smed project investment of 7,500 $ instead of the typical 15,000 $. Calculate the payback period for a setup reduction (SMED) investment by comparing project cost to annual savings from recovered production time.

The inputs for this scenario

  • Total SMED project investment: 7,500 $ (the input this scenario stresses; the baseline uses 15,000)
  • Annual savings from recovered time: 48,000 $/yr (held at the documented default)
  • Annual ongoing cost: 2,000 $/yr (held at the documented default)

Working through the calculation

  • The calculation starts from the formula this tool documents: Payback = Investment / (Annual Savings - Ongoing Costs).
  • Payback period (months) works out to 0.16 months at these inputs, and this is the headline figure for the scenario.
  • Net annual benefit works out to 46,000 $ / yr at these inputs.
  • Total SMED investment works out to 7,500 $ at these inputs.
  • Five-year net benefit works out to 222,500 $ at these inputs.

How this compares with the baseline

  • Against the tool's baseline example, where total smed project investment sits at 15,000 $ and the headline result is 0.33 months, this scenario comes in 50% below the baseline at 0.16 months.
  • Use it when seeking approval for a setup-reduction investment or comparing competing improvement projects on speed of return. A result at this level usually justifies acting on the stressed input before touching anything else, because every other figure in the table is downstream of it.

Results at a glance

  • Payback period (months): 0.16 months (headline result)
  • Net annual benefit: 46,000 $ / yr
  • Total SMED investment: 7,500 $
  • Five-year net benefit: 222,500 $

Run it with your numbers

  • To rerun this with your own numbers, open the live Setup Reduction Payback calculator, set total smed project investment to your actual value, and adjust the remaining inputs to match your operation.

Last reviewed 2026-05-12.