This paper considers a modified lot size reorder point model with imperfect production process, where the unsatisfied demand is assumed to be a mixture of backorders and lost sales. It investigates the effects of investing in process quality improvement on the model. Specifically, we discuss the case where only partial information of lead time demand is known, and solve the problem by applying the minimax distribution free approach. An algorithm procedure is established to obtain the optimal lot size, reorder point and process quality level. Numerical examples are provided to illustrate the results derived.
Journal of statistics and management systems 3(1), pp.75-89