Purpose – The purpose of this paper is to investigate the impact of costs of quality on the present worth (PW) of a new product launch at a North American automobile manufacturer. Design/methodology/approach – The paper is based on the examination of various cash flows associated with a new product launch within an automobile manufacturer. Standard cash flows and a PW analysis were examined and compared to non-standard cash flows which take into consideration post-launch cost of quality (CoQ). A sensitivity analysis was used to determine if any CoQ factors affected the integrity of the product launch. Findings – The paper concludes that there is an impact on the PW of a program when CoQ is considered as a cash flow element. CoQ should be considered in a product launch PW analysis preceding any commitment to invest. Research limitations/implications – This study suggests that, given data on the costs that will accrue assuming standard quality concerns following product launch, and the occurrence of special cause issues, the business case can establish a better estimate of the costs a program will face under varying levels of post-launch quality. An understanding of the potential cost consequences of quality issues can shape the understanding of the risks in a planned project. Practical implications – The paper shows that CoQ can have a significant impact on a PW analysis. CoQ concerns should be considered during pre-launch planning of a new product. Originality/value – The paper satisfies the need to study when a manufacturer considers investment in the launch of a new product with CoQ concerns.
Purpose The purpose of this paper is to investigate the possibility of including the cost consequence of failure in the a priori risk assessment methodology known as failure mode and effect analysis (FMEA). Design/methodology/approach A model of the standard costs that are incurred when an electronic control module in an automotive application fails in service was developed. These costs were related to the Design FMEA ranking of the level of severity of the failure mode and the probability of its occurrence. Monte Carlo simulations were conducted to establish the average costs expected for each level of severity at each level of occurrence. The results were aggregated using fuzzy utility sets into a nine-point ordinal scale of cost consequence. The criterion validity of this scale was assessed with warranty cost data derived from a case study. Findings It was found that the model slightly underestimated the warranty costs that accrued, but the fit could be improved with adjustments dictated by actual usage conditions. Research limitations/implications Cost data used in the simulations were derived from government and academic surveys, analyses, and estimates of the manufacturing cost structure; and nominal costs for various quality issues experienced by Tier 2 automotive electronics supplier. Specificity is lacking. The sample size and the type of the failure modes used to validate the model are constrained by the number and type of products which have had demonstrable performance concerns over the past three years, with cost data available to the authors. The power of the validation is limited. The validation is considered a screening assessment. Practical implications This work relates the characterization of risk with its potential cost and develops a scaling instrument to allow the incorporation of cost consequence into an FMEA. Originality/value A ranking scale was developed that related severity and occurrence rank scores to a cost consequence rank that keys to a cost of quality figure (given as percent of sales) that would accompany a realization of the failure mode.
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