This paper presents a model for supply-chain design that considers the Cost of Quality as well as the traditional manufacturing and distribution costs (SC-COQ model). It includes three main contributions: (1) the SC-COQ model internally computes quality costs for the whole supply chain considering the interdependencies among business entities, whereas previous works have assumed exogenously given Cost of Quality functions; (2) the SC-COQ model can be used at a strategic planning level to design a logistic route that achieves a maximum profit while considering the overall quality level within a supply chain; and (3) we provide two solution methods based on simulated annealing and a genetic algorithm and perform computational experiments on test instances.
IntroductionCost of Quality (COQ), or quality cost, represents a powerful measurement system that translates the implications of poor quality, activities of a quality programme, and quality-improvement efforts into a monetary language for managers. COQ is a language that every stakeholder can understand; it affects operating costs, profitability, and consumer need (Srivastava 2008). Although COQ has been applied mostly within enterprises, it is crucial to extend COQ as an external measure and integrate these costs into supply-chain (SC) modelling.This study aims to develop a strategic-level model for computing the COQ in a formulation of a single-product, multi-stage, serial supply-chain network design (SCND) problem. This paper follows the tradition of strategic-level models that are mainly concerned with the design of the supply chain. Hierarchical models allow the integration of decision levels. The PLOT model developed by Jayaraman and Ross (2003) is an example of a hierarchical model. The first model is a strategic model that is to be run whenever the distribution network design has to be updated. The second model is an operational model that aims to determine the optimal flow of product from warehouses to customers. Another example is the model constructed by Beamon and Sabri (2000). Their executional model includes, among other operational variables, inventory variables. The SC-COQ model could be expanded to a hierarchical model (Section 7) but is presented here only as a strategic-level model.The problem addressed in this paper is to select among several potential suppliers, several manufacturing plants, and several potential retailers to generate a logistic route that achieves the maximum profit while attaining a required quality level at the minimum cost. This paper presents two solution procedures for the resulting nonlinear mixed-integer optimisation problem based on well-known heuristics: simulated annealing (SA) and a genetic algorithm (GA).A few studies have provided comprehensive models to ensure quality in multi-stage SC (Li and Warfield 2011). Das (2011) proposed a multi-stage global SC mathematical model for preventing recall risks by first integrating a quality-based supply management system to affiliate prospective suppliers and then integrat...