In a recent paper , Ouyang , et al . proposed a ( Q , r , L) inventory model with defective items in an ar2 rival lot . The purpose of this study is to generalize Ouyang , et al’s model by allowing setup cost as a decision vari2 able in conjunction with order quantity , reorder point and lead time. In this study , we first assume that the lead time demand follows a normal distribution. Then , an algorithm procedure of finding the optimal solution is devel2 oped.