Supply chain network design based on cost of quality and quality level analysis

Purpose: The purpose of this paper is to explore the impact of the cost of quality (COQ) expenditure allocations on a capacitated supply chain (SC) network. Design/methodology/approach: This paper proposes a non-linear optimization model which integrates the opportunity cost (OC) (i.e. customer satisfaction cost), into the COQ with consideration of the QL in the supply chain network design decisions. In addition, it examines the effect of considering an investment at each SC echelon to ensure the best overall QL. A numerical example is presented to illustrate the behavior of the model. Findings: The results show how the QL, COQ and facility location decisions change when incorporating the OC, investments and transportation costs into the SC model. Originality/value: The novelty of this paper is that it considers the effect of OC, investment at each echelon and transportation costs on SC design by minimizing the overall spending on the COQ. These issues have not been explored, and for that reason, this paper contributes to the understanding of the critical factors that optimizes the SC COQ.