An integrated model for optimisation of production and quality costs

Whether an industrial organisation is involved with production of new goods or engaged in reverse logistics to recycle used products, the items produced that do not meet specifications can cost the organisation in many different ways. The administrative expenses of handling returned items and the cost of reworking the items that have failed in plant quality control or returned by customers can be of concern to the manufacturers. While these are measurable costs, there are other costs such as loss of customers’ good will which are hard, if not impossible, to estimate. The model presented in this paper is aimed at optimising the measurable cost of reworking/scrapping the off-specification items as well as the cost of adjusting manufacturing processes with the aim of reducing or eliminating rejected pieces. The adjustment of process specification in relation to customer specification is a strategy that can affect production and quality cost. Consideration for optimal production specification is one of the elements of the model presented in this paper. In the proposed model, the direct cost of poor quality has been represented by a symmetrical truncated loss function. We have considered investment to adjust the mean and variance of the process. A numerical example is presented to demonstrate how the model can work in a real-world setting.