Manufacturing setup cost reduction and quality improvement for the distribution free continuous-review inventory model with a service level constraint

• The concept of quality improvement and setup cost reduction is applied to a continuous-review inventory model.
• We adopt the distribution free approach which has been widely studied in inventory studies.
• We develop a solution algorithm and show that our results improve existing models significantly.

Over several decades, the continuous-review inventory model has been widely studied based on various assumptions and restrictions such as those related with quality improvement, service level constraint, and setup cost reduction. We extend Moon and Choi's [1] model by assuming setup cost reduction and quality improvement. A distribution free approach is employed such that only mean and standard deviation need to be known. The total system cost is minimized with respect to decision variables against the worst possible distribution scenario. The benefit of using quality improvement and setup cost reduction in this model is shown. Numerical examples show that this model offers significant improvements over existing models. Finally, sensitivity analysis of the key parameters is also presented.