Considering quality cost, time-value of money, and process quality improvement function in the economic product quantity model

Abstract

Decision-makers frequently need to develop new strategic plans to correct weaknesses or build new strengths for a changing business condition. Although numerous studies have addressed the economic product quantity problem, most are unable to cope with the defective products identified during processing. While some investigations have considered the cost of defective products, these studies have only considered the two outcomes of acceptance or rejection, and thus fail to accurately reflect the complexity of product quality. Therefore, this study adopts the Taguchi loss function, a kind of quality cost to measure product quality. In addition, many economic product quantity and economic order quantity models cannot accurately predict cost because they ignore the time-value of money, and thus this study employs the time-value of money. Furthermore, this study also considers the exponential process quality improvement function as a method of estimating how investment reduces process variation. As a result, this study considers the quality cost, the time-value of money, and the exponential process quality improvement function in constructing a new total cost model to optimize the production period, and initial investment in process improvement so as to minimize total cost.