A study on the present worth of bivariate quality loss

Quality loss function has been used as a quality performance measure for pr oducts since the 1980s. In this paper, we extend the work of Teran et al. ( 1996) and incorporate the concept of time value of money into the bivariate loss function. First of all, the model of the present worth of the expecte d bivariate quality loss (PWBL) is established and its solution procedure i s developed. Then, an example is given to illustrate how the model can be a pplied. Some sensitivity analyses are conducted to study the effects of pla nning horizon, customer' s discount rate and coefficients of parameter drif t on optimal means/biases at production time and the associated quality los s. From the results of analysis, the longer the planning horizon of product is, the more deviations from targets should be set for optimal biases at p roduction time. Also, as the customer' s discount rate increases, fewer dev iations from the targets should be set for optimal biases at production tim e.