Simulation of the economics of quality improvement in manufacturing : A case study from the Thai automotive industry

The study of quality economics for manufacturing has focussed mainly on investments and costs, rather than attempting to quantify the benefits of improved quality in the market. This article presents an approach based on both costs and benefits. Systems dynamics‐based simulation has been employed with an optimisation technique, to identify quality spending levels which result in maximum overall profit. The simulation models are based on a Thai automotive manufacturer, which had employed Kaizen for many years, and hence this quality improvement approach was simulated. Two market conditions were modelled: fixed and variable‐price according to the market response to changes in quality level. Optimum profits were found at higher levels of quality spending than actual company spending. The paper examines the details of the optimum condition for the variable‐price market condition. Conclusions are drawn concerning quality improvement strategies and the potential effects of different market pricing conditions on optimum quality spending.