Determining the optimal target for a process with multiple markets and variable holding costs

The determination of the quality target for a manufacturing process represe nts an intricate and fiscally vital decision. This study examines methods f or process target optimization in industries where several grades of consum er specifications land hence several quality-grades of products) may be sol d within the same market. In such situations, manufacturers may hold goods that have been rejected by one customer to sell the same goods to another c onsumer in the same market at a later date. The expected profit function fo r such firms must consider the holding costs as well as the profits associa ted with this sales strategy. This study provides a conceptual and mathemat ical overview of such situations. A method for identifying the optimal proc ess target that reflects holding costs is presented and illustrated in the context of the steel galvanization industry. (C) 2000 Elsevier Science B.V. All rights reserved.