Towards Estimating Cost of Quality in Supply Chains

Abstract:     
After focusing on Cost of Quality (COQ) at all levels within their internal operations, companies need to consider the supply chain upstream as a first step towards addressing COQ-related issues across their supply chains. This paper is a first step in this direction. In this preliminary study, we determine COQ at selected third-party contract manufacturing sites of a world-leading research-based pharmaceutical company in India. Data for the year 2005–2006 were collected using the Traditional Method, the Defect Document Method, the Time and Attendance Method and the Assessment Method through interviews with internal customers, and check-sheets at the contract sites. Various quality cost elements were identified and categorized under prevention, appraisal, internal failures and external failures. We estimate quality costs in monetary terms as per PAF (Prevention-Appraisal-Failure) model and use standard DMAIC (Define-Measure-Analyse-Improve-Check) methodology for analysis. We identify significant COQ drivers in this healthcare supply chain and suggest measures to address them. Finally, we suggest directions for future research.

Keywords: Cost of Quality, PAF model, healthcare, supply chain, third-party contract manufacturing, India

JEL Classification: D20, M20

Accepted Paper Series