Economic Models for Vendor Evaluation with Quality Cost Analysis

George Tagaras and Hau L. Lee
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George Tagaras: Department of Mechanical Engineering, Aristoteles University of Thessaloniki, 54006 Thessaloniki, Greece
Hau L. Lee: Department of Industrial Engineering and Engineering Management, Stanford University, Stanford, California 94305

Management Science, 1996, vol. 42, issue 11, 1531-1543

Abstract: Successful vendor-vendee relationship is viewed as an important ingredient for maintaining competitiveness in the current marketplace. This calls for a careful and comprehensive approach in selecting vendors. The cost of quality (or better phrased as the cost of "unquality") resulted from imperfections of a vendor's incoming input materials is one component of the total costs in the evaluation of vendors. The purpose of this paper is to show that looking at only one dimension of the quality cost is not sufficient and to highlight the importance of having a high quality internal process. We explore the relationship between the vendor's quality cost, the vendor's input quality, and the imperfections of the manufacturing process. We analyze the properties of the resulting quality cost model, and draw managerial implications in the selection of vendors.

Keywords: quality costs; vendor evaluation; production (search for similar items in EconPapers)
Date: 1996
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