JOINT INVESTMENT IN QUALITY IMPROVEMENT AND SETUP REDUCTION

Given a limited investment, we provide a general solution procedure that examines the trade-offs and that allocates that investment optimally for quality improvement and setup reduction. The paper is a generalization and an extension of Porteus [Operations Research 34, 141-143 (1986)]. We use general, continuous functions for quality improvement and for setup reduction. We find that in the face of a budget constraint, it is usually necessary to begin with either quality improvement or setup reduction, in order to bring one of these to some threshold, before joint investment should be undertaken. The contour lines of the total cost and the locus of the optimal solutions illustrate the behavior of the optimal joint investment. We also find that there could be some backtracking when the total relevant cost function for one type of option is strictly convex and is concave for the other type, i.e. a previous threshold investment in quality improvement or setup reduction may be reduced when the budget constraint is relaxed.