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Quality Improvement Using Capital Budgeting and Taguchi’s Function

Geanie W. Margavio (Southwest Missouri State University, USA.)
Ross L. Fink (Bradley University, Peoria, Illinois, USA.)
Thomas M. Margavio (Southwest Missouri State University, USA.)

International Journal of Quality & Reliability Management

ISSN: 0265-671X

Article publication date: 1 August 1994

Abstract

Quality improvement decisions are the catalyst for substantial technological improvements being made in the manufacturing sector. The new technology, however, has developed faster than techniques for evaluating capital investments in such improvements. This is largely because the benefits of quality improvement technology are difficult to quantify. The Taguchi loss function is incorporated into a net present value capital budgeting technique to provide an estimate of these benefits. Describes the loss function in relation to key quality costs: appraisal and prevention costs, and internal and external failure costs. External failure cost savings are generated by reducing variability in the manufacturing process. These savings are then compared with the cost of the quality improving technology. Results indicate that these savings can be substantial, depending on the achieved reduction in the process variability, the cost of capital, and on the estimate of the cost of processing a customer’s return of the product.

Keywords

Citation

Margavio, G.W., Fink, R.L. and Margavio, T.M. (1994), "Quality Improvement Using Capital Budgeting and Taguchi’s Function", International Journal of Quality & Reliability Management, Vol. 11 No. 6, pp. 10-20. https://doi.org/10.1108/02656719410064612

Publisher

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MCB UP Ltd

Copyright © 1994, MCB UP Limited