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The incorporation of the costs of time into performance evaluation, decision and cost accounting systems is examined. Quality improvement schemes almost always measure the materials and labor costs of poor quality, but neglect the response time and timeliness of delivery, factors on the demand side that largely determine competitive advantage. Analysis indicates that thisresults in the underestimation of the costs of poor quality because an increasein the defects of one will affect the delivery time of all products; there is aconvex increasing relation between defects and the total costs of poor quality;and quality improvement is maximized be concentrating defect reduction measureson products with high average service times per order, rather than those that operate in the most competitive markets.

An aggregate planning issue that directly influences the cost to a manufacturing facility of supplier quality and reliability was explored. The level of optimal production and the volume of raw material order, which can reduce the total expected cost, were calculated at the same time. It was shown that this strategy can lead to considerable savings. The cost of reliable raw material supplies were assessed and characterized, and a method of assigning capacity to various products was discussed.