Cost of quality consideration following product launch in a present worth assessment

Abstract

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.