Optimal Quality Strategy in Markovian Rating System

Abstract

Assume a supplier/customer management chain has a quality rating system. In this system, a supplier who did not make any nonconforming lot to his customer during one period are entitled to a discount membership. If he declared one or more nonconforming lots to the customer, then he is penalized by an increase of membership. This paper describes how to compute the optimal strategy for quality rating system. The strategy determines the supplier whether or not to declare a nonconforming lot to his customer. The model contains stochastic process, Markovian property, and iterative algorithm.