A study on the present worth of bivariate quality loss

Abstract

Quality loss function has been used as a quality performance measure for products since the 1980s. In this paper, we extend the work of Teran et al. (1996) and incorporate the concept of time value of money into the bivariate loss function. First of all, the model of the present worth of the expected bivariate quality loss (PWBL) is established and its solution procedure is developed. Then, an example is given to illustrate how the model can be applied. Some sensitivity analyses are conducted to study the effects of planning horizon, customer's discount rate and coefficients of parameter drift on optimal means/biases at production time and the associated quality loss. From the results of analysis, the longer the planning horizon of product is, the more deviations from targets should be set for optimal biases at production time. Also, as the customer's discount rate increases, fewer deviations from the targets should be set for optimal biases at production time.

Key words :

• present worth
• loss function
• bivariate quality characteristic

Notes

Correspondence addressee