A systems dynamics model of manufacturing quality
costs and benefits
Phillip C T Willey, University of Nottingham, Nottingham NG7 2RD, (UK.)
and
Anil K Bajpai, MMM Engineering College, Gorakhpur 273010, UP, (INDIA)
INTRODUCTION
Most manufacturing systems are themselves too complex for the human brain to understand
without the aid of tools such as systems dynamics. The costs and benefits arising in manufacture
are intangibles, often subject to arbitrary accounting practices and allocation conventions. So it
is not surprising that manufacturing costs and benefits are even more difficult to predict, analyse,
promote and control than the manufacturing system itself.
Yet industrial managers need to know the costs and benefits of alternative manufacturing
strategies. How much a particular improvement action will cost and how much and when the
benefits from it will be realised are important facts on which to base investment decisions.
Without such guidance investment in quality improvement is misdirected, at best, or absent, at
worst.
THE MODEL
We describe, in this paper, a model of manufacturing costs and benefits. The manufacturing costs
are drawn from sources published by the British Standards Institution (BSI) and the American
Society for Quality Control (ASQC). The benefits arising from investing in manufacturing quality
are taken from recently published case studies and reports as well as from our own findings. Two
elements which affect manufacturing quality are the level of skill of operators which can be
changed through training and the level of preventive maintenance carried out on equipment such
as machines, dies and other tools. The contributions that these two elements make are identified
and linked in the model so that it is possible to trace how the costs and benefits change through
time. Previous studies have shown (1) (2) (3) (4) (5) (6) that investment in prevention leads to
future benefits. More general commentaries (7) (8) (9) support those specific cases. But the
questions of how much and when need to be answered.
The manufacturing department of many companies is often one of the largest where the
application of capital investment and human skill are directed to the task of ensuring products are
made which conform to design specifications. However, as is well known, scrap and re-work can
cause loss of revenue. Materials, machines, operators, handling, storage, delays and other aspects
can all incur costs which are more than planned, so resulting in losses. These losses, together with
other losses, can feed through the system to produce losses of customers and markets. While it
is true that many of these are ‘unknown and unknowable’ (7), the model we have constructed
concentrates on two important elements which can be quantified. The two, operator training and
preventive maintenance are linked dynamically using causal loops (Figure 1). The costs and
benefits of each and the cumulative costs and benefits are then in a form which can be traced to
the overall costs and benefits, using the software ‘Professional DYNAMO Plus' (10).
TRAINING
There are four components of training costs: identifying training needs, preparation of training
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courses, delivery of actual training and keeping records of training and skills. Investment to meet
any of these four costs reduces the total financial reserves of the company but is paid back, with
a delay, in terms of reduced defectives, less scrap, less re-work, more customer satisfaction and
hence increased demand. The results of the test run showing the cumulative costs and benefits
of training are shown in Figure 2.
PREVENTIVE MAINTENANCE
The condition of machine tools, fixtures, dies and other processing equipment has a direct effect
on the quality of manufactured products. In addition to increasing the levels of scrap and re-
work, equipment which malfunctions or even operates below an optimum level of performance
also increases the costs of production. Greater care, more checks, more inspection, more
adjustments are all incurred. Increased investment in maintenance activities to prevent all these
has to come from a maintenance budget, which is part of the financial reserves of the company.
The cumulative effect of such investment leads, after a delay to cumulative benefits as shown in
Figure 3.
MANUFACTURING QUALITY
The continued cumulative costs and benefits are shown in Fig. 4, as modelled using DYNAMO
(10). The equations and values used for the run shown will be shown in the conference
presentation but space is insufficient to give details. Either of the authors can be contacted to
supply the details (11). Of course, the model is generic and can be used with any data supplied
by any company, so the exact quantitative values shown in the figures may vary from one situation
to another but the general behaviour can be seen.
In Figure 2, estimated losses due to inadequate training of operators (ELITO) rise. An investment
into training, costs of training operators (CTO), is made four years after the start which, later,
begins to show a benefit (BTO). The cumulative benefits of training operators (CBTO) increases.
In Figure 3, estimated losses due to inadequate preventive maintenance (ELIPM) rise. After six
years an investment is made into preventive maintenance, costs of preventive maintenance (CPM),
which, after a delay, brings benefits (BPM). This then becomes a cumulative benefit (CBPM).
Figure 5 shows how these two combine. Quality costs of prevention in manufacturing (QCPM)
bring quality benefits from prevention in manufacturing (QBPM) which eventually become
cumulative quality benefits from prevention in manufacturing (CQBPM).
CONCLUSION
The work described here is just one module in a larger model (Figure 5) of the quality costs and
benefits of the different yet integrated activities of typical companies. The elements in the larger
model (11) are purchasing, design and marketing as well as manufacture. Overall the model
allows industrial managers to explore the consequences of different levels, types and timings of
investment. It is possible to explore how profit performance changes quantitatively and the delays
involved. This helps in the training of industrial managers as well as being a useful tool for
decision makers, encouraging them to invest in quality improvement with the advantage of
knowing where and how benefits in manufacture are likely to occur.
REFERENCES
1. BLANK, L and SOLORZANO, J. Using quality costs analysis for management improvement’.
Industrial Engineering 10, (46-51). (1978).
oH
BoM NAY
BRISAC, A., OISTRACH, G., and YANEZO. ‘Quality costs data in three Spanish automotive
companies.’ Quality, 4, (99-104), (1971.)
CHAUVEL, A.M., and ANDRE, Y.A. ‘Quality costs: Better prevent than cure.' Quality
Progress, 9, (29-32), (1985) .
DENTON, D.K., and KOWALSKI, T.P. ‘Measuring non-conformance costs reduced
manufacturer's cost of quality in a product by $200,000." Industrial Engineering, 8, (36-39),
(1988).
ISAAC, D. 'How Jaguar lost its spots.’ Management Today, 4, (39-24, 120,177), (1984).
WILLIAMS, ELE. ‘Quality productivity cost and profit.' EOQC Quality, 3, (10-13), (1985).
DEMING, W.E. ‘Out of the Crisis.’ CAES, MIT Press, Massachusetts (USA), (1986).
CROSBY, P.B. ‘Quality is Free.' Mc-Graw Hill, New York (USA), (1979).
OAKLAND, JS. 'Total quality management.’ Heinemann (UK), (1989).
0. PUGH-ROBERTS ASSOCIATES, Professional Dynamo Plus: I Simulation software for the
IBM PC family and hardware compatibles. II Introduction guide and tutorial. III Reference
manual.' Cambridge, Massachusetts (USA) (1986).
11. BAJPAI, A-K. ‘Computer simulation of quality costs and benefits: a systems dynamics
OS'S OF TRAINING
CA
OPERATORS «CT0)
modelling approach.’ Ph.D dissertation. University of Nottingham (UK). (1990).
MANUF AC TURING
(ope)
PREVENTION IN
BENEFITS FROM
QUALITY BENEFITS
FROM
MAINTENANCE
TRAINING OPERATORS
(BT)
)
BENEFITS FROM
\ ro)
CUMULATIVE
BENEFITS FROM
\
CUMULATIVE. BENE!
FROM PREVENTIVE
QUALITY COSTS PREVENTION
IN MANUF AC TURING
(OCPM)
COSTS OF PREVENTIVE
MAINTENANCE
(com
oa
Figure 1
(cato)
TRAINING OPERATORS,
«cBeny
MAINTENANCE
QUALITY BENEFITS.
Quality Costs and Benefits Model for
Manufacturing department Causal loops.
|
MANUF AC TURING
(cogem)
)
yo
“ALS
———— HLIT0(8, 208.) === BI0(8, 208.)
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Esumatod losses (£), Costs (C/Year)
Benefits (€/Year), Cumulative beneiits (£)
Estimated losses (£), Costs (f/Year)
Benefits (f/Year), Cumulative benefits (£)
=
10,
TIME (rear)
Figure 2 Test run for estimated losses due to inadequate training operators
{ELITO), costs of training operators (CTO), benelits from training operators (BTO)
and cumulative benefits from training operators (CBTO).
———10H09.,48,) = 508, 1508,
pee COBPMC-500, 1500)
1508,
‘Coste (tea, Barats (Year, Cumuiatwve bareste (6)
s
so 8
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!
f
1
i
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a
rs
z
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-500. 8, 8,
TIME cveary i i
Figure 4 Test run tor quailty costs of prevention in mi nutacturing (CPM)
. ah
Banat om preverton m marctacunng (O8PH wns comcions coah boany
tom prevention w marciacurng (COP
Oe ‘DUALITY Berit tan
Rear coe 40,
TIME veary
Figure 3 Test run for estimated losses due to inadequate preventive maintenance
(ELIPM), costs of preventive maintenance (CPM), benelits from preventive
maintenance (BPM) and cumulative benbfits from preventive maintenance (CBPM).
GIES Macroscootc structure of tne
Costs and Benetits rove!
Causal toons natiere!
