Inventory and investment in setup operations under return on investment maximization

In this paper, we construct and analyze inventory and investment in setup o perations policies under return on investment (ROI) maximization. The key c ontributing features of this paper are the establishment of an ROI model an d characterization of the unique global optimal solution when there exists an option to invest in setup operations. We also show how the inventory lev el is reduced when it is optimal to invest additional money in setup operat ions and derive the unique optimal solutions in closed-form when the setup cost is a rational or linear function of the level of investment. Various i nteresting managerial insights are provided. (C) 1999 Elsevier Science Ltd. All rights reserved.