European Journal of Operational Research 39 (1989) 261-273 261 North-Holland Theory and Methodology Quality control and product A decision framework servicing: Charles S. TAPIERO School of Business Administration, Hebrew University of Jerusalem, Jerusalem Hau L. LEE Department of Industrial Engineering and Engineering Management, Stanford University, Stanford, CA 94305, USA Abstract: This paper considers the relationship between quality control and service provision. Since quality control efforts evidently impact the need for servicing, the joint design of both the levels of quality control and service capacity is warranted. A simple framework is developed to deal with this joint design problem. Two cases are considered. For degenerate probability functions of defective items, the quality control scheme becomes that of inspection screening. We show that, by considering the joint problem of inspection and service capacity, the cost function is no longer concave in screening efforts, and thus the optimal screening levels may not be simply 0 or 100%, as indicated by past studies. The capacity issue in fact leads to a higher level of screening in certain cases. For non-degenerate probability functions of defective items, sufficient conditions are derived, whereby the optimal quality control policy and servicing capacity can be readily obtained. Keywords: Service capacity provision, inspection screening, economic design of quality control 1. Introduction Improvements in product quality by tighter quality control procedures, although expensive, can have benefits that may be substantial. Crosby (1980) has identified the potential cost savings of good qualities: reduced costs of lost customer credibility, redesign, engineering change order, purchasing change order, corrective action costs, rework, scrap, warranty, service and repair, and product liability. Gitlow and Hertz (1983) have also described the intimate relationship between product quality and productivity, rework, service and repair. The effect of good quality control on the cost of servicing can be very significant. The 15 recalls by General Motors (Fortune, 1983, April 18) and the recall of 4.7 million radial tires by Firestone Tire & Rubber Co. which resulted in a cost of $171 millions (Business Week, 1982, November 1) are good examples of extensive servicing costs as a result of product qualities that are substandard. The increased sophistication of consumer products (personal computers and their peripheral equipment, cameras, electric ovens, etc.), and consumers' inability to choose among competing brands can lead to product evaluation along product support lines. As indicated by Glickman and Berger (1976), Shimp and Received March 1985; revisedJanuary 1987 0377-2217/89/$3.50 © 1989, Elsevier SciencePublishers B.V. (North-Holland)