Investment in setup cost, lead time, and demand predictability improvement in the EOQ model

Chung Lun Li, Steven J. Erlebacher, Dean H. Kropp

Research output: Journal article publicationJournal articleAcademic researchpeer-review

7 Citations (Scopus)


We study an economic order quantity/reorder point (EOQ/ROP) model with stochastic demand and backorders where options of investing in reducing setup cost, lead time, and variance of demand forecast errors are available. The model is quite comprehensive relative to previous models since it simultaneously addresses the strategic decisions associated with these three investment opportunities as well as the tactical decisions of determining both the lot size and the safety stock. We develop a simple search procedure to obtain the optimal values of setup cost, lead time, variance of demand forecast errors, order quantity, and safety stock multiplier. Computational studies are performed to determine the sensitivity of the optimal solution of the model to changes in the model's parameters.
Original languageEnglish
Pages (from-to)341-352
Number of pages12
JournalProduction and Operations Management
Issue number4
Publication statusPublished - 1 Dec 1997
Externally publishedYes


  • EOQ
  • Inventory
  • Production

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation


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