Abstract for: A system dynamics approach to model cost of quality in a supply chain

The objective of this paper is to build a cost of quality (COQ) model operating within supply chain (SC), which also incorporates opportunity cost (OC). The model allows studying the relationships between the COQ elements (including OC) at different quality levels. System dynamics is used as the main approach in this study. The COQ model is built based on the Prevention-Appraisal-Failure (PAF) concept while Opportunity Cost (OC) is integrated into non-conformance cost category. The simulation using Vensim software is carried out to study the effects of the COQ elements and OC on the numbers of new customers in the SC. The findings of this research show that the number of new customers in SC decrease when OC is considered in the model; however, an investment in conformance costs is recommended to increase the number of new customers, which consequently will reduce the non-conformance costs. However, in reality, tracing opportunity cost is challenging, because it depends on the customer satisfaction which is not easy to capture and quantify. The study derives the level and the dynamics of the customer satisfaction from a survey and may thus suffer from some inaccuracies.