This paper proposes an approach that integrates the relationship between design and production engineers through the theory of nonlinear optimization. It attempts to cope with the problem of optimally allocating tolerances in a manufacturing process. The upper and lower limits of the random variables of an engineering system are allocated so as to minimize production cost, with allowance for the system scrap percentage. The approach is illustrated by an example, and the general mathematical theory is also provided. An important distinction between the design and the manufacturing scrap is introduced, and the cell technique is utilized to estimate efficiently the system scrap.

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