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Stochastic Comparisons in Production Yield Management

Department of Mechanical Engineering, University of Minnesota, Minneapolis, Minnesota 55455
Department of Mechanical Engineering, University of Minnesota, Minneapolis, Minnesota 55455
guptad{at}me.umn.edu
billcoop{at}me.umn.edu

Manufacturing firms routinely commit resources to increase yield rates through product- and process-improvement initiatives. Champions of such yield-improvement projects may assume that stochastically larger yield rates are beneficial. In this note, we show that this need not hold, even when the contingent production lot sizes are chosen optimally. We employ stochastic comparison techniques to show that a yield rate that is smaller in the convex order ensures higher expected profit, and we provide a distribution-free bound on the size of increase in expected profit. We also identify properties of yield-rate distributions that do make stochastically larger yield rates beneficial.

Subject classifications: random yield; stochastic order relations.
History: Received May 2002; revision received February 2003; accepted April 2004.

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