Using Opportunity Costs to Determine the Cost of Quality: A Case Study in a Continuous-Process Industry

Sandoval-Chavez, Diego Adiel; Beruvides, Mario G.

doi:10.1080/00137919808903192

Cited by 58 publications

(33 citation statements)

References 2 publications

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“…Opportunity cost models have also been developed by Carr [2] and Sandoval-Chávez and Beruvides [25]. Sandoval-Chávez and Beruvides [25] present a model based on the PAF classification plus opportunity losses. Xerox defines the loss of opportunity as the loss of revenue from defective products, customer dissatisfaction, and complaints from customer [2].…”

Section: External Failure Costmentioning

confidence: 99%

A model for supply chain design considering the cost of quality

Castillo-Villar

Smith

Simonton

2012

Applied Mathematical Modelling

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a b s t r a c tRecent studies have shown that the cost of quality (COQ) is of more strategic and economic importance than previously conceived. Whereas previous works have applied COQ as an internal performance measure within companies, the purpose of this paper is to present a model for supply chain design that computes the COQ as a global performance measure for the entire supply chain. In addition, rather than assume an exogenously given COQ curve, our model computes COQ in terms of internal operational decisions such as the error rate at inspection and fraction defective at manufacturing. The model can be used to design a logistic route that achieves a minimum total cost while maintaining an overall quality level and to evaluate the impact of investment in quality to increase overall profits. The behaviour of the model is illustrated with numerical examples that show how the COQ function changes depending on various parameters.

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Section: External Failure Costmentioning

confidence: 99%

A model for supply chain design considering the cost of quality

Castillo-Villar

Smith

Simonton

2012

Applied Mathematical Modelling

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“…We emphasize that general opportunity cost functions include both explicit and implicit costs (Mankiw, ) with the explicit opportunity costs requiring monetary payment, and including possible anticipated regulatory costs, wage expenses, and the opportunity cost of capital (see Porteus, ), etc. Implicit opportunity costs are those that do not require payment, but to the decision maker, still need to be monetized, for the purposes of decision making, and can include the time and effort put in (see Payne et al., ), and the profit that the decision maker could have earned, if he had made other choices (Sandoval‐Chavez and Beruvides, ).…”

Section: The Pharmaceutical Supply Chain Network Model With Outsourcimentioning

confidence: 99%

Pharmaceutical supply chain networks with outsourcing under price and quality competition

Nagurney

Liu

Nagurney

2013

Int Trans Operational Res

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In this paper, we present a pharmaceutical supply chain network model with outsourcing under price and quality competition, in both equilibrium and dynamic versions. We consider a pharmaceutical firm that is engaged in determining the optimal pharmaceutical flows associated with its supply chain network activities in the form of manufacturing and distribution. In addition to multimarket demand satisfaction, the pharmaceutical firm seeks to minimize its total cost, with the associated function also capturing the firm's weighted disrepute cost caused by possible quality issues associated with the contractors. Simultaneously, the contractors, who compete with one another noncooperatively in prices in the manner of Bertrand, and in quality, seek to secure manufacturing and distribution of the pharmaceutical product from the pharmaceutical firm. This game theory model allows for the determination of the optimal pharmaceutical product flows associated with the supply chain in-house and outsourcing network activities and provides the pharmaceutical firm with its optimal make-or-buy decisions and the optimal contractor selections. We state the governing equilibrium conditions and derive the equivalent variational inequality formulation. We then propose dynamic adjustment processes for the evolution of the product flows, the quality levels, and the prices, along with stability analysis results. The algorithm yields a discretization of the continuous-time adjustment processes. We present convergence results and compute solutions to numerical examples to illustrate the generality and applicability of the framework.

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“…The same logic of 'missed opportunities' applies to production schedules. Anything that makes a company deviate from its planned activities incurs opportunity costs [1]. Poor quality is a deviation from the plan to run an efficient production system that produces only sellable output.…”

Section: Missed Opportunitiesmentioning

confidence: 99%

The opportunity costs of poor quality

Freiesleben¹

2005

Qual. Assur. J.

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SummaryCost discussions abound in the literature on quality improvement, yet the focus was rarely set on opportunity costs, a rather important economic concept. Only a few articles demonstrate how companies incur these costs when dealing with quality problems. We want to develop a simple 'opportunity costs perspective' to classify costs of poor quality and to show how these have an impact on the bottom line. Applying this perspective might help in explaining why quality improvement and prevention are in most cases profitable investments. It also highlights the fact that traditional accounting for the costs of poor quality might miss important points for deciding on the attractiveness of quality improvement projects.

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Using Opportunity Costs to Determine the Cost of Quality: A Case Study in a Continuous-Process Industry

Cited by 58 publications

References 2 publications

A model for supply chain design considering the cost of quality

A model for supply chain design considering the cost of quality

Pharmaceutical supply chain networks with outsourcing under price and quality competition

The opportunity costs of poor quality

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