On the present worth of multivariate quality loss

Quality loss function has been introduced, by Taguchi, to be a quality performance measure for products since the 1980s. In this paper, we extend the work of Teran et al. [The Engineering Economist 42 (1) (1996) 39-52] and incorporate the concept of time value of money into the multivariate loss function. First, the model for the present worth of the expected multivariate quality loss (PWML) is established and its solution procedure is developed. Then, an example is provided to illustrate how the model can be applied. Some sensitivity analyses are conducted to study the effects of planning horizon, customer discount rate and coefficients of parameter drift on the optimal means at production time and the associated quality loss. From the results of analysis, the longer the planning horizon of the product is, the farther the means should be set relative to the targets at production time. Also, as the customer discount rate increases, the mean should be set closer to the target at production time. (C) 2001 Elsevier Science B.V. All rights reserved.