Short runs and changeovers: what a small batch really costs
A small batch carries the same changeover as a large one, so the profit per unit can turn negative. A one-table method shows the batch size below which a product loses money.
The price list says a small order and a large order cost the same per unit. The shop floor says otherwise. The average hides the story, and in a small manufacturer or wholesaler the story is often the changeover.
1. What you see: the same product, very different profit
Every batch carries a fixed cost before the first good unit appears: stopping the line, changing tooling, adjusting, running first-off pieces. Spread that cost over 1,000 units and it nearly vanishes. Spread it over 50 and it can wipe out the margin.
Take an illustrative product (all figures below are for illustration, not data from any company). It sells at £9.50 and costs £6.00 a unit to run. A changeover takes 3 hours of line time at £55 an hour, plus £35 of first-off scrap: £200 per batch.
| Batch size | Changeover cost per unit | Full unit cost | Profit per unit | Profit on the batch |
|---|---|---|---|---|
| 50 | £4.00 | £10.00 | -£0.50 | -£25 |
| 200 | £1.00 | £7.00 | £2.50 | £500 |
| 1,000 | £0.20 | £6.20 | £3.30 | £3,300 |
Same product, same price, same customer type. The 50-unit order loses money.
2. Why it matters now
Input costs are moving faster than selling prices. The ONS reports that UK producer input prices rose 8.3% in the year to September 2026, while output (factory gate) prices rose 4.6% (ONS, Producer price inflation, UK, September 2026). When material costs rise faster than prices, there is less margin left to absorb a fixed batch cost. A small batch that was marginal last year may be a loss this year. The next ONS release is due on 18 November 2026.
3. The fix: one table, one hour
Pick the five products you change over most often, and for each write down four numbers: batch size, changeover hours, scrap or adjustment loss, and cost per unit at three batch sizes. Then decide on a rule: a minimum batch, or a setup surcharge on orders below it. In the example, a 20% margin on a £9.50 price needs about 125 units a batch.
4. Why the principle holds
The Precision Machined Products Association shows the same arithmetic in a worked example: with an 8-hour setup and a one-minute cycle, 100 parts take 5.8 minutes each, 1,000 parts take 1.48 and 10,000 take about 1.05 (PMPA, SMED vs EOQ). Order quantity amortises setup cost more than any setup reduction does. The other lever is the setup itself: the Kaizen Institute describes SMED, developed by Shigeo Shingo at Toyota, as a way to cut changeover times and make small batches viable (Kaizen Institute, SMED explained). Cut the setup, raise the batch, or price the difference. Pick one.
Tips and tricks for this week
- Record the real changeover hours for your five most-changed products. Use the stopwatch, not the routing sheet.
- Calculate unit cost at three batch sizes, as in the table above.
- Find the batch size below which a product earns less than your target margin.
- Choose one customer who orders small and often, and test a minimum batch or a setup surcharge with them.
- Put the review in the diary: re-run the table after the 18 November ONS release.
Direction, not measurement: your own numbers will differ from the illustration. If you want a view of where margin leaks across customers and products, the Business Health Check is a place to start. One change, one date.