There are almost always potential conflicts of interest, even if the roles are separated. However, one way to look at it is to think of an even smaller organization, say 5 people. No way can all roles be assigned to different individuals.
So I would consider things such as:
- What industry is it (e.g., if high risk, such as medical devices, then it's likely a problem; if not high risk, less so)
- Is there only the quality/production manager, or is there someone else with a quality title. If the latter then give that person a dotted line reporting relationship to the top person (e.g., general manager)
- Are there clear policies/guidelines that can help an individual who has multiple roles know what priorities/actions are/not appropriate?
- If the company is ISO 9001 registered then the audit function can help assess whether the conflict if interest is creating problems (e.g., look at organizational objectives/performance metrics and whether actions are being taken that do not support them
Of course whoever the production manager reports to is ultimately responsible for ensuring that any conflicts are resolved/addressed.