The Dynamics of Quality Costs: Reconciliation of the Conventional and Total Quality Management Views

Abstract

ABSTRACT This paper integrates the concepts of “quality is free” and “quality is costly” views by using long-term analyses and the continuous improvement philosophy. We presume that operating managers try to minimize total quality cost. In some literature of the conventional or static quality management view, the optimum defect rate is obtained when total defect control cost is equal to total failure cost. We show that this optimum defect rate is misspecified in most cases. We show that the optimum defect rate in the static model is obtained when marginal defect control cost is equal to marginal total failure cost. Using value-added and nonvalue-added concepts, we show that the optimum defect rate is obtained when marginal prevention cost is equal to marginal gross failure cost. In addition, we show that zero defect production at minimum cost can be attained only in the long-term through continuous improvement and innovation in prevention technology. Our findings are useful since the determination of the ...