Analysing the cost of quality within a supply chain using system dynamics approach

Abstract

The objective of this paper is to examine the effects of incorporating the opportunity cost (O_C) into quality costing calculations in order to build a general framework for the behaviour of all quality cost factors within the supply chain (SC). The proposed cost of quality (COQ) model uses System Dynamics approach and is based on the traditional prevention–appraisal–failure (PAF) concept. The data were collected from real automobile manufacturing SC and the O_C was captured by deriving the level and the dynamics of the customer satisfaction from a survey. Various simulation runs were implemented in order to develop general relationships between COQ factors and identify key relationships. The findings reveal that when O_C is considered in the COQ model, the number of new customers and production units in SC decreases, which highlights the importance of the O_C analysis in making decisions for the quality management strategies. No work has been published in regard to integrating PAF, the quality level and O_C into SC modelling; the findings will help better understanding the value of O_C in SC.

Keywords:

• opportunity cost
• cost of quality
• PAF model
• supply chain
• system dynamics