Models for Measuring and Accounting for Cost of Conformance Quality

We build a model to measure and account for the cost of quality. We incorporate the impact of quality on lead time variance and on service reliability and demand. Quality costs are a joint and nonlinear function of various parameters of the manufacturing process. Our model shows that it may not be optimal for quality improvement efforts to target products that have the highest defective levels, largest direct costs or consume the maximum capital resources. A stochastic dynamic programming model is developed to evaluate the optimal trade-offs across prevention and appraisal costs, and the costs of failure.