Question

Most businesses that make products or offer services usually have certain design specifications for their offerings. Typically, product specifications indicate a target specification, with tolerance, such as a copy machine being able to print between 105 pages per minute as the target, with a tolerance of 5 pages, on either side of the target - making a design spec of 100 to 110 pages per minute. These tolerances are needed because often there is some natural variation in the processes that make the products, such as machines, labor, and materials that make the product or service. While many businesses use design spec tolerances (similarly to kicking a football through a goal post) and calling that a win or score, more sophisticated businesses actually recognize that there are costs associated by missing the target (even slightly). Adopting the philosophy of driving for perfection, causes businesses to work hard to craft processes to limit variation - this often involves using better equipment, better technology, better training of employees, better materials. Taguchi is famous for developing an approach that associates costs to products/services that are off target (even if the products are within the specification tolerance. Smart managers can use this method and philosophy to push for better processes, to minimize variation - pursuing target - not just making a product that is merely within a tolerance. The Taguchi approach involves consideration of costs, like paying warranty claims to dissatisfied customers, suffering abnormal wear and tear on assemblies and product, if the product in question is a part that goes into another product.

Use the Taguchi function to determine the costs associated with this homework problem - submit excel file, using excel to compute your answers.

Answer 1

The question pertains to how businesses use mathematical models, specifically the Taguchi approach, to manage production quality and costs. It involves experimentally finding the optimal production scale and employing economies of scale, where increased output leads to lower unit costs.

Step-by-step explanation:

The discussion involves understanding how businesses apply mathematical models and the Taguchi approach to manage production costs and achieve optimal quality. Design specifications and tolerances are crucial in product development, but sophisticated businesses strive for perfection rather than just meeting these specifications. By employing the Taguchi method, managers can quantify the costs associated with products being off-target, even within tolerance ranges, including warranty claims and additional wear and tear.

In economic terms, firms experiment with production levels to observe effects on profits, focusing on how changes in production affect marginal revenue and marginal cost. This experimental approach can help determine the least costly production technology and the optimal scale of production. For instance, economies of scale demonstrate that as output increases, the cost per unit decreases, often seen in businesses like Costco or Walmart.

It is through understanding economies of scale, marginal cost, and revenue that firms can select the most efficient production levels and technologies, ultimately enhancing product quality and reducing costs.