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A note on determining an optimal target by considering the dependence of holding costs and the quality characteristics

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  • Yuehjen Shao
  • John Fowler
  • George Runger

Abstract

Products that do not meet the specification criteria of an intended buyer represent a challenge to the producer in maximizing profits. To understand the value of the optimal process target (OPT) set at a profit-maximizing level, a model was developed by Shao et al. (1999) involving multiple markets and finished products having holding costs independent from their quality. Investigation in cases considered previously has involved holding costs as a fixed amount or as a normal random variable independent of the quality characteristic (QC) of the product. Less specific in nature, this study considers more general cases in which the HC can be a truncated normal random variable, which is dependent on the QC of the product.

Suggested Citation

  • Yuehjen Shao & John Fowler & George Runger, 2005. "A note on determining an optimal target by considering the dependence of holding costs and the quality characteristics," Journal of Applied Statistics, Taylor & Francis Journals, vol. 32(8), pages 813-822.
    • Handle: RePEc:taf:japsta:v:32:y:2005:i:8:p:813-822
    DOI: 10.1080/02664760500080066
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    References listed on IDEAS

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    1. Arcelus, F. J. & Rahim, M. A., 1990. "Optimal process levels for the joint control of variables and attributes," European Journal of Operational Research, Elsevier, vol. 45(2-3), pages 224-230, April.
    2. D. C. Bettes, 1962. "Finding an Optimum Target Value in Relation to a Fixed Lower Limit and an Arbitrary Upper Limit," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 11(3), pages 202-210, November.
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