Optimizing Quality Cost With The Loss Function

Article

Wong, Henry H.   (1992, ASQC)   Polysar Rubber Corporation, Sarnia, Ontario, Canada

Annual Quality Congress, Nashville TN    Vol. 46    No. 0
QICID: 9818    May 1992    pp. 93-99
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Article Abstract

The Taguchi Loss Function, a graphical method for representing quality costs, is described in this paper. A significant advantage of the method is that it can be expanded to include market forces effects, which in turn can be employed to indicate the competitiveness of a company. Quality costs are used to identify costs related to product nonconformance and to measure their relative importance. This understanding of how and why resources nave been wasted can provide direction for improvement. Quality costs exist in terms of four common categories: external failure costs include the costs of responding to customer complaints, customer returns, warranty claims, and product recalls; internal failure costs occur before product delivery, and include the costs of scrap, reinspection, retesting, and downgrading; appraisal costs are associated with measuring, evaluating, and auditing of products; and prevention costs include quality planning, quality improvement, and quality training. Products which deviate significantly from customer specifications can cause large external costs. Accordingly, it is more profitable to rework materials and processes to absorb smaller internal costs; external costs should be transformed into internal costs. Reworking is not the only approach. Avoiding expensive product deviations in the first place can be more economical. Choosing the best approach requires a balance of failure, appraisal, and prevention costs. The Taguchi Loss Function represents these costs. Prevention typically entails technology optimization, which can lead to additional costs. The function also can illustrate these costs. These measures, placed in the perspective of other business goals, can help to justify quality expenditures, and to generate more effective quality policies.

Keywords

Competitiveness,Cost of quality (COQ),Deviation,Marketing,Process improvement,Taguchi method


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