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Economic Models for Vendor Evaluation with Quality Cost Analysis


  • 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)


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.

Suggested Citation

  • George Tagaras & Hau L. Lee, 1996. "Economic Models for Vendor Evaluation with Quality Cost Analysis," Management Science, INFORMS, vol. 42(11), pages 1531-1543, November.
  • Handle: RePEc:inm:ormnsc:v:42:y:1996:i:11:p:1531-1543

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    References listed on IDEAS

    1. Martin Neil Baily & Robert J. Gordon, 1988. "The Productivity Slowdown, Measurement Issues, and the Explosion of Computer Power," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(2), pages 347-432.
    2. Erik Brynjolfsson & Thomas W. Malone & Vijay Gurbaxani & Ajit Kambil, 1994. "Does Information Technology Lead to Smaller Firms?," Management Science, INFORMS, vol. 40(12), pages 1628-1644, December.
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    Cited by:

    1. Bera, Sasadhar & Mukherjee, Indrajit, 2016. "A multistage and multiple response optimization approach for serial manufacturing system," European Journal of Operational Research, Elsevier, vol. 248(2), pages 444-452.
    2. Tagaras, George & Zikopoulos, Christos, 2008. "Optimal location and value of timely sorting of used items in a remanufacturing supply chain with multiple collection sites," International Journal of Production Economics, Elsevier, vol. 115(2), pages 424-432, October.
    3. Donald E. Harter & Mayuram S. Krishnan & Sandra A. Slaughter, 2000. "Effects of Process Maturity on Quality, Cycle Time, and Effort in Software Product Development," Management Science, INFORMS, vol. 46(4), pages 451-466, April.
    4. Kulkarni, Shailesh S., 2008. "Loss-based quality costs and inventory planning: General models and insights," European Journal of Operational Research, Elsevier, vol. 188(2), pages 428-449, July.
    5. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    6. repec:pal:jorsoc:v:56:y:2005:i:7:d:10.1057_palgrave.jors.2601913 is not listed on IDEAS
    7. Luciana Echazu & Mark Frascatore, 2012. "Supply Chain Quality, Mandatory Insurance, and Recall Risk," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 11(1), pages 1-11, June.
    8. Li, Dong & Nagurney, Anna, 2015. "A general multitiered supply chain network model of quality competition with suppliers," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 336-356.
    9. Paul F. Zantek & Gordon P. Wright & Robert D. Plante, 2002. "Process and Product Improvement in Manufacturing Systems with Correlated Stages," Management Science, INFORMS, vol. 48(5), pages 591-606, May.
    10. Kaijie Zhu & Rachel Q. Zhang & Fugee Tsung, 2007. "Pushing Quality Improvement Along Supply Chains," Management Science, INFORMS, vol. 53(3), pages 421-436, March.
    11. repec:pal:jorsoc:v:57:y:2006:i:5:d:10.1057_palgrave.jors.2602027 is not listed on IDEAS
    12. Tang, Christopher S., 2006. "Perspectives in supply chain risk management," International Journal of Production Economics, Elsevier, vol. 103(2), pages 451-488, October.
    13. Lee, Chang Hwan & Rhee, Byong-Duk & Cheng, T.C.E., 2013. "Quality uncertainty and quality-compensation contract for supply chain coordination," European Journal of Operational Research, Elsevier, vol. 228(3), pages 582-591.
    14. Xie, Gang & Wang, Shouyang & Lai, K.K., 2011. "Quality improvement in competing supply chains," International Journal of Production Economics, Elsevier, vol. 134(1), pages 262-270, November.
    15. Kyle J. Mayer & Jack A. Nickerson & Hideo Owan, 2004. "Are Supply and Plant Inspections Complements or Substitutes? A Strategic and Operational Assessment of Inspection Practices in Biotechnology," Management Science, INFORMS, vol. 50(8), pages 1064-1081, August.
    16. repec:pal:jorsoc:v:58:y:2007:i:11:d:10.1057_palgrave.jors.2602420 is not listed on IDEAS
    17. repec:pal:jorsoc:v:54:y:2003:i:1:d:10.1057_palgrave.jors.2601476 is not listed on IDEAS
    18. Yang, Fiona X. & Zhang, Rachel Q. & Zhu, Kaijie, 2017. "Should purchasing activities be outsourced along with production?," European Journal of Operational Research, Elsevier, vol. 257(2), pages 468-482.
    19. Yan Dong & Kefeng Xu & Yi Xu & Xiang Wan, 2016. "Quality Management in Multi-Level Supply Chains with Outsourced Manufacturing," Production and Operations Management, Production and Operations Management Society, vol. 25(2), pages 290-305, February.
    20. Liu, Ke & Li, Jing-An & Lai, Kin Keung, 2004. "Single period, single product newsvendor model with random supply shock," European Journal of Operational Research, Elsevier, vol. 158(3), pages 609-625, November.
    21. Sheu, Jiuh-Biing, 2008. "A hybrid neuro-fuzzy analytical approach to mode choice of global logistics management," European Journal of Operational Research, Elsevier, vol. 189(3), pages 971-986, September.

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    quality costs; vendor evaluation; production;


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