Economic Models for Vendor Evaluation with Quality Cost Analysis

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.