Incorporating the Cost of Quality in Supply Chain Design

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The current issue and full text archive of this journal is available at www.emeraldinsight.com/1355-2511.htm

Incorporating the cost of quality in supply chain design
Amar Ramudhin
Department of Automated Manufacturing Engineering, ´ ´ Ecole de Technologie Superieure, Montreal, Canada, and

Incorporating the cost of quality 71

Chaher Alzaman and Akif A. Bulgak
Department of Mechanical and Industrial Engineering, Concordia University, Montreal, Canada Abstract
Purpose – This paper aims at exploring the challenges of introducing a model integrating the Cost of Quality (COQ) into the modeling of a supply chain network. Design/methodology/approach – This paper introduces a comprehensive supply chain model that minimizes a series of costs, in which COQ is integrated. Findings – The scenario of incorporating COQ in supply chain network design will ensure the lowest overall cost, because it reduces the probability of defects and hence the probability of additional cost which might be due to corrective action. Practical implications – With many industries today on the quest of improving their quality systems, finding ways to reduce nonconformities and failure of products is crucial. In industries such as the aerospace industry, the variable production cost is high; hence producing extra parts to compensate for defectives would be a costly option. Originality/value – While COQ is a very good indicator of how much poor quality is costing a company, no work has been published in regard to integrating COQ into supply chain modeling. Keywords Supply chain management, Quality costs, Mathematical programming Paper type Research paper

Introduction A supply chain can be defined as an integrated process of various business entities interacting with each other to source, process and distribute value added products or services to customers. Those business entities can be generally categorized in four categories: suppliers, manufacturers, distributors and retailers (Beamon, 1998). The interactions between these entities insure the delivery of vital business processes. These vital processes can be described as follows (Min and Zhou, 2002): . acquiring raw materials and parts; . transforming raw materials and parts into finished products; . adding value to these products; . distributing and promoting these products to retailers and in-turn to customers; and . facilitate information exchange among these entities. This research was supported in part by the Natural Sciences and Engineering Research Council of Canada (NSERC) as well as funds from the Faculty of Engineering and Computer Science, Concordia University, Montreal, Canada.

Journal of Quality in Maintenance Engineering Vol. 14 No. 1, 2008 pp. 71-86 q Emerald Group Publishing Limited 1355-2511 DOI 10.1108/13552510810861950

JQME 14,1

72

The supply chain not only includes the manufacturers and the suppliers, but also the transporters, the warehouses, the retailers, and the customers themselves. The main objective of a supply chain is to maximize the overall value generated (Chopra and Meindl, 2001). From the customer’s point of view, a better definition of supply chain can be thought of as a system consisting of all stages involved, directly or indirectly, in fulfilling a customer request. The objective of a supply chain network is then to minimize the end customer’s total level of dissatisfaction, composed of price, quality, and delivery lead time (Cakravastia et al., 2002). So, a supply chain needs to be configured in such a manner as to minimize cost while still maintaining a good quality level to satisfy the end user. While supply chain network design problems have been addressed before by a fair number of researchers on the basis of operation costs, the idea of incorporating the cost of quality into the network design is nonexistent in research. Knowing that most supply chain models employ some form of a cost variable, it would be advantageous if one can find a cost...
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