Analysis of Time, Cost and Quality Tradeoffs in New Product Development Decision-Making

Nowadays, an increasing customers’ dynamic preference enforces many manufacturers to make their products more advanced version, and they face not only to accelerate their development duration but also to shorten product life cycle due to clockspeed amplification and intensified global competition. These trends put more pressure on firms to decrease time-to-market, improve product quality, and allocate their development resources properly for more efficient new product development(NPD) processes. Accordingly, we can presume the tradeoffs among the decision factors in NPD processes. There are several past studies which investigated the tradeoffs in NPD decision factors such as development time, development cost, and performance quality. They typically analyzed tradeoffs between two decision factors, i.e., development time and development cost, along with in investigating their effects on a firm’s profit. These extant studies used U-shaped function to describe the NPD time-cost tradeoff. Even if U-shaped relationship was reasonable, unfortunately, this function form failed to either accurately represent measurement units of time and cost variables or systematically capture increment and decrement of development cost to the changes of development time. In fact, NPD project costs increase not only as development time increases to improve quality level, but also as the firm expedites durations of NPD project activities to speed up entry timing into the market. However, to our best knowledge, little research has been done to explicitly consider the tradeoffs among development time, cost and quality, and thus there still exists a room for more accurately modeling and investigating this complicated time-cost-quality tradeoff issues in a comprehensive manner. Therefore, this study intends not only to rectify some shortcomings of the former studies but also to develop an analytic model of investigating complicated NPD tradeoff relationships. The proposed nonlinear model is to determine the optimal development time, cost associated with R&D resource input and indirect components, and product performance quality level, in order to maximize firm’s profit during a fixed window of opportunities, including development and sales periods. We then solve this model and conduct sensitivity analyses of the decision variables and key parameters in order to excavate and provide important managerial insights into NPD decision-making in practice.