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This article develops a method by which quality and price differentials between competitors can be measured and used as a basis for determining the value of suppliers' products to the firm. Value pricing and the Taguchi quality loss concept are combined to provide a vehicle for calculating the total cost to the buyer associated with competing suppliers' product offerings. Based on the total cost to the buyer, a superior sourcing decision can be made.
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Quigley et al. (1992) studied this question.
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