Controlling Lost Sales Rate for Inventory System with Partial Backlogging Defective Items

We study a continuous review inventory model which involves controllable lead time, partial backlogging defective items and investment to reduce lost sales rate. Buyer's order quantity, reorder point, lost sales rate and lead time are taken as decision variables. By framing the model, we observe that a significant amount of savings can be easily achieved to increase the competitive edge. Both normal distribution and distribution free models are discussed sufficiently. Effects of investing in lost sales rate reduction are clearly stated and savings are achieved in a numerical example. We compare the lost sales rate reduction model with fixed lost sales rate model. Also, we give the improvement of the cost performance of the distribution free approach in another numerical example.