Quality Function Deployment Approach

The Quality Function Deployment Approach (QFD) is an analytic method in capital budgeting that analyzes the need of customer and assesses the competitor’s status in the industry (Partobi, F. Y. , 1999). As cited in Partobi’s QFD approach, it is not only in the variables of the cost of capital that rely the conclusive viability and success but more so by learning and acknowledging the advantages of constant change of market. It can be noted from Partobi’s that the constant change of market could be an opportunity.

Meaning, the market trend should be assessed according to the needs of buyers—say, what kind of goods are saleable, why it is saleable, how it was made and who made it—that significantly compose the constant change of market. On the other hand, the key result area is to familiarize the competitor’s character, scope of operation and the variable of investment costs. Many manufacturing entrepreneurs in the Philippines are encouraged to do business when a certain product is getting substantial patronization.

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The so-called one-stop-shop corporative entrepreneurial venture (San Miguel Corporation, Philippines, 2000) resembles with the QFD and more so relative to the supply chain management approach. Wherein, the one-stop-shop corporative entrepreneurial venture invests in raw material production, processing, manufacturing, and developing its own market. The framework of business operation is within a confined and contained territory in which competition is controlled or regulated.

The added social services and incentives are through expanded venture in realty, housing, roads and bridges, transportation, water and electricity, marketplace, schools and hospital that are built within the production area and catering to its labor force.

In so doing, the capital evolves within a produce-reproduce-consume cycle. Cited in Partobi’s QFD approach, the capital budgeting is strategically associated with capital allocation using the Analytic Hierarchy Process (AHP) that has the advantage to familiarize the customer’s needs and prioritize manufacturing cost, production flexibility and distribution of goods.

The QFD with its integrated AHP may enable systematic fund allocation, cash flow and easily troubleshoot hurdle variance in overhead. However, the risk factor that is considered a hurdle rate in QFD is the effect of competition when market overflows the supply of goods. Therefore, QFD has its critical consideration to assess the capability of competitor. In the Philippines’ population of about 60 million Filipinos in 1999, an approximate 35% are indulging to beer drinking (National Statistical Coordinating Board, Philippines, 1999).

The Philippines’ leading beer manufacturer has doubled production against the assumed percentage of beer drinkers and about three leading competitors did the same production. This beer manufacturing in 1999 flooded the Philippines’ with the over supplying of beer which in turn has resulted to massive reduction of prices in raw materials and other commodities relative to beer manufacturing (San Miguel Corporation, Philippines, 1999).

It was later found, regardless yet similar to Partobi’s QFD, that the hurdle in rate of return was the inability and overestimated cost of capital to manufacturing. The recouping period was then attributed in exportation to pacify the cost of overhead; likewise, the volume of distribution could be the only way to avail incentives and absorb the cost of delivery, warehousing and tax and duties.