Given a limited investment, we provide a general solution procedure th
at examines the trade-offs and that allocates that investment optimall
y for quality improvement and setup reduction. The paper is a generali
zation and an extension of Porteus [Operations Research 34, 141-143 (1
986)]. We use general, continuous functions for quality improvement an
d 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, bef
ore joint investment should be undertaken. The contour lines of the to
tal cost and the locus of the optimal solutions illustrate the behavio
r of the optimal joint investment. We also find that there could be so
me 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 pr
evious threshold investment in quality improvement or setup reduction
may be reduced when the budget constraint is relaxed.