Modelling Cost of Quality for Defect Reduction

Purpose: This paper aims to develop the system dynamics model of managing quality costs using the perception maps prepared on the basis of the actual data of the organization. The model depicts the cost of quality and the associated defect percentage to represent the real-world data of the company under study. Model is validated using the different tests to build the confidence on the model. Underlying feedback structures and interactions among various variables make the model more robust and realistic.Design/Methodology/Approach: The simulation software STELLA is used for programming the model. Using the generic structures of the cost of quality, stock and flow diagram is developed to map the real-life business scenario.Findings: Cost of Quality is a forgotten dimension in many companies. Most of the companies are not measuring the cost of quality as a powerful indicator for quality measurement and for process improvement. Defect level is the function of prevention, appraisal and failures (PAF) costs associated with the PAF model. System Dynamics is computer-based simulation methodology that gains the insight of the social, economic, and business problems and acts as a powerful tool for policy design for better decision making.Implications/Originality/Value: Policy analysis clearly indicate that dynamics of cost of quality is quite complex and to identify the prioritized parameter for investment cannot be intuitively appreciated. System dynamics is a simulation-based methodology which can solve the complex interactions and different policy runs lead to the best appropriate mix of cost elements in order to reduce the failure costs (internal and external).