Design Supply Chain Based on Cost of Quality with Consideration of Quality Level

In the contemporary global market, organizations are striving to survive and compete not only by satisfying customer’s needs but also by fulfilling it with the least costs. Quality management experts determined that quality costs account for a substantial part of total production costs. Therefore, finding a way to improve the Quality Level (QL) while minimizing the Cost of Quality (COQ) is a crucial task. In the manufacturing industry, there are a variety of costs that are directly associated with the production; these costs can be considered as visible costs. However, another type of costs may indirectly arise during and after manufacturing processes or even after the product reaches the customer. These types of costs are considered as invisible (hidden) costs and in most cases are difficult to track. Measuring the effect of hidden costs such as the costs of unsatisfying a customer is not straightforward. Even though the hidden costs may have serious consequences for any organization if they are not considered in early stages, they are rarely incorporated in the COQ calculations. Furthermore, the COQ models found in the literature rarely go beyond the costs incurred within an individual firm and seldom attempt to estimate cost elements related to the customers or suppliers. This, however, does not reflect the reality, since not all the quality costs are generated internally. Suppliers, subcontractors, agents, dealers and customers each contribute (sometimes significantly) to an organization's indirect quality costs. It is therefore proposed to combine the internal measures of COQ with costs related to both upstream and downstream supply chain (SC) partners. In this thesis, pursuing the aforementioned motivations, we focus on designing SCs in framework of various COQs and QLs. The previous literature lacks a work that integrates the opportunity cost (OC), COQ and QL into SC and Supply Chain Network Design (SCND). The main objectives of this thesis are to consider OC in the COQ analysis, to incorporate it into the Prevention, Appraisal, and Failure (PAF) model, and to analyze it together with various QLs in a manufacturer SC. The purpose is to find an optimum QL that matches the minimum spending on the COQ and. This work proposes a reliable COQ model, which can be used to measure COQ in the whole SC. We carried out a case study in a manufacturing SC to collect the PAF data and the related data to OC i.e., customer satisfaction. The involved organization is an automobile manufacturing SC. A system dynamics model is used to simulate the COQ, while including OC and analyzing its effects at different QLs. In addition, PAF, OC, and QL are mathematically modeled in an uncapacitated SC. Different proposed scenarios were developed to allocate the PAF, OC, and QL in the SC. The model determines the best scenario of allocating the COQ at each facility while minimizing the COQ and OC, and thereby optimizing the QL. Based on the COQ, the mathematical model also reveals the difference between the centralized and decentralized SC. Moreover, we address the effects of spending limitations of PA costs on F, OC, and QL at each facility and in the SC as a whole. Afterwards, the thesis develops a mathematical model which is involved in designing of a capacitated SCND based on PAF, OC, and QL. The developed model is intended to highlight the importance of OC by show the difference between OC-included and OC-excluded SCND model. The SCND model is also used to determine the best improvement in the QL, i.e. the optimal value of investing in the COQ at each echelon. Finally, a hybrid decision support system (DSS) model which combines the mathematical model and the simulation model for COQ, OC, and QL is developed. The model implements the optimum results of the mathematical model in the simulation model. This aim is to increase spending on PA costs beyond the optimal results of the mathematical model. The model is intended to decrease the OC (increase the number of new customeers). The results show how the combined methodologies can provide better decision support for upper management. This research shows that COQ can be used as a meaningful measure of improvement not only in an organization but in the whole SC. The methods developed in this thesis will provide a powerful tool to management for assessing quality economics, facilitating quality programs and optimizing benefits of quality across SC.