The productivity nexus of new inventory and quality control techniques

Abstract

Inventory and quality decisions have traditionally been viewed as tradeoff situations where there are distinctly non-zero “optimal” amounts of inventories and defects. Recently, however, some firms have pursued explicit goals of reducing inventories to zero with just-in-time methods and trying to reduce defects to zero with Total Quality Control approaches. This would seem to contradict the economic logic of the tradeoff analysis. This paper develops an economic rationale for just-in-time and Total Quality Control by incorporating productivity effects into the traditional tradeoff analysis. Also, it shows how just-in-time and Total Quality Control are complementary programs, and that for the zero inventory and zero defect goals to be achieved, they must be used simultaneously. Dynamic linkages between the two models are incorporated into the analysis to demonstrate this.