Advertisement

Strategic issues, producer-supplier relationships and the economics of quality

Chapter
  • 184 Downloads

Abstract

The need for a strategy arises because choices are not obvious. Better quality at any price is a naive strategy which recently turned out to be right because the cost of quality has been grossly understated and the benefits of quality entirely unaccounted for. Today it is believed that a comprehensive approach to the design and management of quality is essential to strengthen a firm’s competitive position. An investment in quality must be justified by an acceptable rate of return, however. In an article on quality, Business Week (August 8, 1994) reports that there is an overwhelming concern that quality must pay. For example, Varian, a Silicon Valley firm, went about reinventing the way it did business with what seemed to be stunning results. A unit that makes vacuum systems for computer clean rooms boosted on-time delivery from 42% to 92%. The radiation-equipmentservice department ranked number 1 in its industry for prompt customer visits. But while Varian performed extremely well according to its statistics, it did poorly in the market place. While meeting production schedules, they did not return customers phone calls. Radiation-repair people were so rushed to meet deadlines that they left before explaining their work to customers.The results ended in a lower market share. Over-emphasis on statistical performance and neglect of the firm’s ‘bottom line’ has recurred in many other firms, leading to myopic policies, and subsequently to losses.

Keywords

Nash Equilibrium Information Asymmetry Moral Hazard Robust Design Negative Information 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Akerlof G. (1970) The Market for Lemons: Quality Uncertainty and the Market Mechanism, Quarterly Journal of Economics, 84, 488–500.CrossRefGoogle Scholar
  2. Carter J.R. and J.G. Miller (1989) The impact of alternative vendor/buyer communication structures on the quality of purchased materials, Decision Sciences, Fall, 759–775.Google Scholar
  3. Cox Donald (Editor) (1967) Risk Taking and Information Handling in Consumer Behavior, Boston, Harvard University Press.Google Scholar
  4. Darrel I. (1991) Software Quality and Reliability, London, Chapman and Hall.Google Scholar
  5. Deutsch M.S. and R.R. Willis (1988) Software Quality Engineering, Englewood Cliffs, N.J., Prentice Hall.Google Scholar
  6. Dresher M. (1961) Games of Strategy: Theory and Applications, Englewood Cliffs, N.J., Prentice Hall.Google Scholar
  7. Dreze J.H. (1977) Demand Theory under quantity rationing: A note, mimeo., CORE Google Scholar
  8. Dunn R. (1984) Software Defect Removal, New York, McGraw Hill Inc.Google Scholar
  9. Harris M. and Raviv A. (1979) Optimal incentive contracts with perfect information, Journal of Economic Theory, 20, 231–259.CrossRefGoogle Scholar
  10. Holmstrom B. (1979) Moral hazard and observability, Bell J. of Economics, 10, 1, 74–91.CrossRefGoogle Scholar
  11. Holmstrom B. (1982) Moral hazard in teams, Bell J. of Economics, 13, 324–340.CrossRefGoogle Scholar
  12. Ishikawa K. (1987) The quality control audit, Quality Progress, January, 39–41.Google Scholar
  13. Jacoby Jacob and Leon Kaplan (1972) The Components of Perceived Risk, in M. Venkatesan, (Editor), Proceedings: Third Annual Conference,Atlanta Association for Consumer Research, 382–393.Google Scholar
  14. Lancaster, K. (1971) Consumer Demand, A New Approach, New York, Columbia University Press.Google Scholar
  15. Luce R.D. and H. Railfa (1967) Games and Decisions: Introduction and Critical Survey, New York, Wiley.Google Scholar
  16. Moulin H. (1981) Game Theory for the Social Sciences, New York, New York University Press.Google Scholar
  17. Nash F. (1950) Equilibrium points in N-person games, Proceedings of the National Academy of Sciences, 36, 48–49.CrossRefGoogle Scholar
  18. Owen, G. (1982) Game Theory, Academic Press, New York. Reyniers D.J. (1992) Supplier-Customer interaction in quality control, Annals of Operations Research.Google Scholar
  19. Reyniers D.J. and C.S. Tapiero (1995a) Contract design and the control of quality in a conflictual environment, Euro. J. of Operations Research.Google Scholar
  20. Reyniers D.J. and C.S. Tapiero (1995b) The Supply and the Control of Quality in supplier-producer Contracts, Management Science.Google Scholar
  21. Sematch (1990) Partnering for Total Quality: Guidebook, Toolkit, Joit assessment guide, Executive implementation and Overview, Austin,Texas.Google Scholar
  22. Spence A.M. (1977) Consumer misperceptions, product failure and product liability, Review of Economic Studies, 44, 561–572.CrossRefGoogle Scholar
  23. Stiglitz J.E. (1987) The causes and consequences of the dependence of quality on priceJournal of the Economic Literature, March 5, 1–48.Google Scholar
  24. Tapiero C.S. (1993) The statistical control of quality and random payoff games, International Conference on Applied Stochastic Models and Data Analysis, Crete, Greece, May 3–6.Google Scholar
  25. Tapiero C.S. (1994a) Acceptance sampling in a producer-supplier conflicting environment: Risk neutral case, Applied Stochastic Models and Data Analysis.Google Scholar
  26. Tapiero C.S. (1994b) Complexity and the New Industrial Management, OR Insight.Google Scholar
  27. Tapiero C.S. and L.F. Hsu (1988) Quality Control of an Unreliable Random FMS with Bernoulli and CSP Sampling, International Journal of Production Research, vol. 26, 1125–1135.CrossRefGoogle Scholar
  28. Wallich P. and M. Holloway (1993) Health care without perverse incentives, Scientific American, July, 109.Google Scholar
  29. Williamson O. E. (1985) The Economic Institutions of Capitalism, New York, Free Press.Google Scholar

Copyright information

© Charles S. Tapiero 1996

Authors and Affiliations

  1. 1.Ecole Supérieure des Sciences Economiques et CommercialesParisFrance

Personalised recommendations