Industrial quality : a missing economic variable

Industrial quality is presented as a direct result of manufacturing practices (e.g. tolerance allocation, process selection, inspection procedures). A quality indicator is developed that allows for the computation of a function representing the cost of an industrial product versus its quality level. This cost function is then incorporated in an economic model that estimates the consumer's demand for the product as a function of both its price and quality level. The profit maximizing values of the price and quality level are derived, and in turn indicate the optimum production mode. Introduction More than ever, industrial quality is one of the critical elements in the fierce competition between manufacturing companies. From an engineering standpoint as well as from a management standpoint, quality is a challenge that cannot be ignored. Yet, one striking feature of most economic models in firm competition theory is the absence of quality considerations. The prevailing assumption is that competing products are standard commodities for which the consumer's demand is a function only of the price charged by the manufacturer. A possible explanation is that quality is often thought of as a qualitative variable, and is therefore difficult to include in an economic analysis: the benefits in terms of market share or profit resulting from tightening a process or screening a production cannot be easily estimated. For that matter, our paper presents a model quantifying quality at the engineering level in order to provide an evaluation of its impact on the financial results of a firm. The methodology can be used for assessing manufacturing practices as well as for guiding company policy and resource allocation. The model is exemplified by the study of the production of a simple three component assembly. 1. The Cost of Quality 1.1 W h a t Is Indus t r ia l Qual i ty ? Since the beginning of mass production, manufacturers have been struggling with the variability inherent in any manufacturing operation. Because no production process can produce any two items that are exactly identical, there is a need to spot and isolate "defective products". On one hand the basic requirement for mass production is that all