Economic production quantity and process quality: a multivariate approach

Abstract

Purpose

The purpose of this paper is to study the interaction of economics of production with process quality, when multiple key quality characteristics are present. Specifically, the paper aims to analyse the possibility of investing in a production process to reduce its variances and the impact on a multivariate quality loss function.

Design/methodology/approach

A bivariate inventory‐planning model is developed, in which the optimal investment for reducing process variances and the optimal lot size are jointly determined. A case study with industrial data is presented to illustrate the possible solution procedures and the potential advantages of the proposed model.

Findings

It is found that by using the previous approaches to analyse the interaction between the economics of production and process quality, a company will underestimate the cost of quality, especially the expected external failure cost (quality loss), and ultimately invest less into the prevention activities to improve the process.

Originality/value

The proposed model can help managers to compare different production processes and also guide the managers towards better choices for process improvement. To the best of our knowledge, this paper is the first to integrate the economic production quantity (EPQ) problem with the process quality consideration for products with multiple quality characteristics.

Citation

Chan, W.M., Ibrahim, R.N. and Lochert, P.B. (2005), "Economic production quantity and process quality: a multivariate approach", International Journal of Quality & Reliability Management, Vol. 22 No. 6, pp. 591-606. https://doi.org/10.1108/02656710510604908