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



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.


Nash Equilibrium Information Asymmetry Moral Hazard Robust Design Negative Information 
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Copyright information

© Charles S. Tapiero 1996

Authors and Affiliations

  1. 1.Ecole Supérieure des Sciences Economiques et CommercialesParisFrance

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