Economic Design of a Two-sided Screening Procedure Using a Correlated Variable

Abstract

In a complete inspection (screening) procedure, all the outgoing items are subject to acceptance inspection. If an item fails to meet the predetermined screening specifications, the item is rejected and excluded from shipment. When the inspection on the performance variable is destructive or costly, it may be economical to use another variable that is correlated with the performance variable and is relatively inexpensive to measure as the screening variable. Suppose that there is an ideal (target) value for the performance variable. The quality deviation between the measured value of the performance variable and the target value causes dissatisfaction to the product`s user. An avenue to avoiding such dissatisfaction is to exclude the item from shipment. This is especially attractive for the items of high quality deviation. An economic model for this screening procedure is developed with the consideration of the quality cost incurred by consumer`s dissatisfaction, the cost associated with the disposition of the rejected items and the screening cost. The optimal screening specifications are determined by a balance of these costs. Solution procedures for the optimal screening specifications are developed for three commonly used quality cost functions. Empirical studies are used to illustrate when a correlated variable is economical to be used as the screening variable.