The Effect of Acceptance Sampling and Risk Aversion on the Quality Delivered by Suppliers

Journal of the Operational Research Society, Vol. 45, No. 3, pp. 309-320, 1994

Posted: 12 Jun 2006

See all articles by S. Andrew Starbird

S. Andrew Starbird

Santa Clara University - Department of Information Systems & Analytics

Abstract

Firms often use acceptance sampling to monitor the quality of the raw materials and components delivered by suppliers. In this paper, we use numerical methods to examine how a risk averse supplier produces and delivers a quality level that maximizes the supplier's expected utility. We examine the sensitivity of the optimal delivered quality to changes in the price, to changes in the supplier's level of risk aversion and to changes in the parameters of the customer's sampling plan. We conclude that risk averse suppliers deliver higher quality, that higher capability supplier do not necessarily deliver higher quality, and that the optimal quality is sensitive to the lot size. We also conclude that since the risk of rejection motivates suppliers to improve quality, customers have an economic justification for using acceptance sampling even when there is no statistical justification.

Keywords: quality, acceptance sampling, purchasing, risk

JEL Classification: L15, M11

Suggested Citation

Starbird, Sterling Andrew, The Effect of Acceptance Sampling and Risk Aversion on the Quality Delivered by Suppliers. Journal of the Operational Research Society, Vol. 45, No. 3, pp. 309-320, 1994, Available at SSRN: https://ssrn.com/abstract=907380

Sterling Andrew Starbird (Contact Author)

Santa Clara University - Department of Information Systems & Analytics ( email )

500 El Camino Real
Santa Clara, CA 95053
United States

HOME PAGE: http://omis.scu.edu/

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