Muhammad Rosiawan, Moses Laksono Singgih, Erwin Widodo
Extended Abstract
The objective of the study is to develop a mathematical model to measure the quality cost and economic benefits of the implementation of the quality improvement program within a business process of manufacturing companies. The economic benefits are obtained from saving quality costs resulting from achieving operational performance targets. The research methodology is used; firstly, the authors developed a conceptual model as a basis for a mathematical model. Secondly, they used a numerical experiment to illustrate the measurement of the effect of the change of the model parameters’ values (e.g. number of performance indicators, and level target of performance target) toward the performance target achieved, cost savings obtained, and economic benefits. If the value of the model parameters increases, then the economic benefits will increase as well, and give a shorter return period of investment. And vice versa, if the value of the model parameters decreases, then the economic benefits will decrease as well and give a longer return period of investment. The model describes the dynamics of the quality costs and economic benefits periodically obtained from a quality improvement program.
Keywords: quality cost, performance target, cost savings, economic benefits, payback period;
1. Introduction
The objective of a quality cost system is to measure the success of the quality improvement process and ensure that the investment in a quality improvement program is cost-effective. Top management in a manufacturing company often ask questions such as how much investment is needed for a quality improvement program and if the impact on the company performance is worth the cost spent
2. Method
This research method begins with conducting a literature study related to relevant topics in order to obtain a research gap. Based on the research gap, and to supplement the research already carried out on relevant topics, the purpose of this paper is to develop conceptual models and mathematical models for measuring quality costs and the economic benefits of implementing quality improvement programs. The results of the model are verified using a numerical experiment to study model behaviour based on the model parameters and it changes. The results of the numerical experiment are used for discussion and are related to the results of previous studies. The research steps are illustrated in Figure 4 as follows.
3. Conclusion
Economic benefits of implementing a quality improvement program are influenced by the amount of investment in quality improvement programs, the number of performance indicators and target levels, and the weight of the contributions from performance indicators in a business process to the total contribution of all business processes in manufacturing companies. For higher levels of target performance, the number of indicators increases, and the cost savings are greater. However, for lower levels of target performance, an increasing number of indicators does not guarantee that the greater savings will be obtained. For this reason, the company must be right when deciding the target level of the performance indicator.