Risk analysis of estimates for cost of quality in supply chain: a case study

Abstract

Risk analysis for Cost of Quality (CoQ) in supply chain has not been adequately researched as evidenced in the literature. This paper attempts to analyse risk involved in estimating elements of CoQ in the internal supply chain of an integrated aluminium manufacturing company. We have applied grounded theory methodology on accounting codes of the case company primarily to bring out various elements of CoQ in its internal supply chain. They are categorized as ‘cost of prevention’, ‘cost of defective inputs’, ‘cost of defect in process’, and ‘cost of defect in output’. These elements are considered to be risky due to availability of partial information in past records of accounts while applying grounded theory methodology. In order to estimate the range and probabilities of all possible outcomes of various categories CoQ in the supply chain, Monte Carlo simulation has been used. The results have facilitated decision makers in strategic total quality management.