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In most deterministic and stochastic inventory models encountered in the literature, the optimal policy is determined on the basis of the assumption that lead-time is a given parameter. However, lead-time is composed of several controllable components such as run time, setup time, waiting time, moving time, and lot size inspection time. In this paper, we study a stochastic inventory continuous review system with lead-time depending on lot size and setup time. We assume that the lead-time can be expressed as the product of productive time and a given non-productive factor that reflects the portion of the lead-time such as waiting and moving times. For general demand distributions, the resulting mathematical model is too complex to be solved analytically. For such distributions, we developed an Awesim simulation model for the continuous review system with lot size and lead-time interaction. This simulation model is interfaced with an optimization procedure based on a proposed partial enumeration method to search for the least-cost lot size and reorder point. [ABSTRACT FROM AUTHOR]