EXTERNAL FAILURE COST ESTIMATION USING RELIABILITY MODELS: AN ALTERNATIVE TO TAGUCHIS LOSS FUNCTION

ABSTRACTTaguchis quadratic loss function is used to capture the effect of nonconformance to target values of quality characteristics in monetary values. Despite the merits of its idea, there are major limitations of the quadratic loss function especially its use of a proportionality constant that pools all the effects of external failure costs into a single parameter. Researchers and practitioners alike agree that the proportionality constant of the quadratic loss function is too simplistic in form and extremely difficult to estimate in practice. That is why there have been many attempts to find alternatives to the quadratic loss function.In this study, an alternative to the quadratic loss function is presented by relating the variance of the quality characteristic as well as the difference between the mean setting and the target to the products reliability. Then, using warranty models, the reliability is linked to external failure costs. This is shown for normally and beta distributed N type, S type, and L type quality characteristics. A comprehensive illustrative example is also presented that outlines the methodology of implementing these models in real life problems.