ESTIMATING QUALITY COSTS BY COMPUTER SIMULATION Developments In Business Simulation & Experiential Exercises, Volume 19, 1992 231 ESTIMATING QUALITY COSTS BY COMPUTER SIMULATION James M. Freeman, UMIST Kok L. Lee, UMIST ABSTRACT Quality improvement continues to be a key priority in many modern-manufacturing companies. Yet it often takes place without a full evaluation of corresponding costs and benefits. A new case exercise addresses this situation with the aim of making quality managers much more aware of the consequences -particularly the detailed economic effects - of their actions. The focus of the exercise is a set of results from a realistic production line setup. These reveal related quality costs to be far from satisfactory. With the aid of a computer simulation model (QCOST), participants strive to optimise costs for the line against a targetted output quality. INTRODUCTION Product quality is an important element of competitive strategy in most manufacturing companies. (Quality in this context -following the conventional view -is taken to refer to the product’s “fitness for use”). But how much quality is needed at what cost? By its nature, quality assessment is often highly subjective. This can lead to great difficulty with identification of costs. Even where costings are feasible, the calculations involved are potentially so complex as to require significant computer support -a fact conveniently overlooked by many of the texts on the subject. The effect of these constraints has been to deter all but the most dedicated of firms from pursuing a comprehensive cost assessment of their operation. THE QCOST COMPUTER SIMULATION QCOST allows quality costs to be estimated for a wide variety of production configurations. Particular costs covered by the program include those of quality loss, testing and inspection, scrap or rework of defective products, process adjustment, lost production and warranty. Inputs to QCOST are handled by means of a powerful graphics editor. This enables a line to be built up simply and systematically, from its component processes. At any stage, the resultant setup can be saved to disk or viewed in schematic form, on-screen. Structural changes to the line are achieved by adding, inserting or deleting processes as necessary. Technical details on individual processes can also be easily modified by editing values held on standard templates. The program employs large-scale Monte Carlo methods: for each line process, defined, some 3000 random numbers are generated, using standard mathematical algorithms. Each random number is taken to correspond with a product passing through the process. Cost estimates are based on the characteristics of these would-be products and how they are dealt with on the line. Despite the large number of computations involved, total simulation time is surprisingly manageable. For example, for the Company X (six-process) application, described below, a full cost breakdown can be obtained, on a 386-based machine, in under two minutes. Output is available in tabular form or can be graphed to show, in particular, different types of cost by process. COMPANY X Company X specialises in the manufacture of hydraulic hoists and has a production capacity of 200,000 tubes per year. The hoists are produced on some of the world’s most advanced machinery: its 70,000 square metre factory is fully equipped with flexible manufacturing systems, robots and other computer controlled machines. The applications described in the case concerns the processing of tubes. These first need to be cut to required lengths then rough polished. Next, pre-machined head billets are friction-welded on to them followed by slider billets. After this the tubes are sent for tuning and boring before being finished-polished. It should be noted that, prior to QCOST, the company -in spite of all its high tech -had no awareness of a problem with it quality costs. CONCLUSION Visual interactive simulation modeling provides an effective tool for gaining insight into quality situations not normally amenable to analytic treatment. QCOST is an example of the type of user-friendly system now being developed to support managers in their quest for quality improvement. The related case exercise should do much to increase awareness in this vitally important area. Table of Contents Volume 19, 1992 The Pedagogical Utility of a Management Simulation Game in a Business Policy Course Modeling Economic Environments in Business Simulations: Some Comparisons and Recommendations Experiential Learning and TQM Principles: Teaching Behavioral Science in a Business School The Use of Poster Presentations as a Final Project in the Business Policy Course The Device Business: A Management Simulation for Strategy Formulation The Advantages of Experiential learning in the Auditing curriculum A Framework for the Identification of Moderated and Mediated Performance consequences of Pedagogical Alternatives Simulating Qualitative Research Relating to Values and Lifestyle Segmentation A New Market Demand Model for Business Simulators Interactive Optimization Using the Method of Relative Improvement Preferences: Methodology and Empirical Evaluation The Service Trainer Simulation Benefits of Internet Computer Networks for ABSEL Members How Should We Measure Experiential Learning? An Assessment of Simulation Usage in Management Accounting Courses The Influence of Myers-Briggs Type and Group Dynamics on Simulation Performance Effective Leadership Behavior in the Desert Storm Arena: An Application of the Vroom-Yetton-Jago Model Installing and Consolidating Work-Team Values: The Effects of a Multicultural Outdoors Experiential Program Key Determinants and Decision performance in a Business Simulations and Experiential Learning environment Multi-Cultural Experiential Learning: A Computer Simulation in Indonesia Attitudes Toward and Emotions Related to Women as Managers: A Replication and Beyond Scenario Approach to Simulating Consumer Expenditures: A Cross-Cultural Analysis Insights into Ethical Decision making Activities and Organizational Performance: A Management Simulation Analysis of College Students and Managers Evaluating a Business Simulation Program for Joint Venture Negotiation and Management Teaching Business Interviewing Strategies with an Experiential Approach Cooperative Learning Across the Business Curriculum Modeling Total Quality Elements into a Strategy-Oriented Simulation Teaching Business Decision making using a Simulator Extending the Educational Utility of a Simulated Competition within the Confines of an Established Undergraduate Marketing Curriculum Expert Systems Versus Traditional Methods for Teaching Accounting Issues Confidence Extremes Diminish Quality Performance in a Total Enterprise Simulation Can Ethics Be Taught? A Simulation Tests a Traditional Ethics Pedagogy Through The Looking Glass, Inc.: Organizational Climate Research as Experiential Pedagogy The use of Cluster Analysis for Business Game Performance Analysis Power and Ethnicity: An Experiential Learning Exercise (How to Sensitize Students to Diversity) Directed Development of Critical and Creative Thinking Skills for Case Analysis Implementing Total Quality Management in a Computerized Business Simulation Product Quality in Business Simulations Use of Simulation for Ethics Education in Management Satisfying the University's Customers through Total Quality Management Instruction: A Case Study Personality Characteristics and Group Performance in Total Enterprise Simulations Concepts of Interval Estimation and Quality Control Charts via Computer Simulated Sampling An Examination of the Effect of Team Cohesion, Player Attitude, and Performance Expectations on Simulation Performance Results The Effectiveness of Inventory Management and Production Scheduling Training in a Total Quality Management Environment Peer Group Indicators of the External Validity of Business Games: A five-year Longitudinal Study Political Strategies and Personal Actions Does Practice make Perfect? Observations on Simulation Trial The Use of A Non-Business Computer Simulation to Teach Marketing Management BankPro Commercial Bank Simulation The Production Game Pursuing Excellence: Work Strengths, Assets and relevant Values (An Exercise) Test of a Short Outward Bound Experience for College Students What is it that we want Student To Learn? Using Two TQM Philosophies when Playing Blackjack The Lagged Effects of Decision Variables on Financial Performance Measures Used in Two business Simulations The Development of an Experiential Exercise for Career Planning and Effective Job search Performance Measuring Quality in Management of Business Pedagogy Exploring Quality and Productivity Improvement: Using and Experiential Process Toward a Generalized Architecture for Intelligent Reactive Management Systems The Quality Game TQX: Using Expert Systems to Improve Training in Total Quality Management A Simulation of the Effect of the Medicaid Payment Lag on the Financial Position of Community Pharmacies The Use of a Board of Directors to Evaluate and Validate Decisions in a Competitive Graduate Management Simulation Course The Impact of Academic Dishonesty on Business Simulations and Experiential Learning Activities Picture Project: An Experience of Icebreaking and/or Decision-Making An Effective Role-playing Exercise for Teaching Requisite TQM Supervisory Attitudes/Behavior Computerized Management Simulations and Some Correlates of Students' Satisfaction The Timing and Stability of Reactions to Market Structure in a Single Player Simulation Environment A Graphics Application Extension for a Simulated Decision Support System Environment Aspects of a Group Project Utilizing Actual Business data and a Computerized Accounting System The Role of Universities' Extended Learning Department in Assisting Organizations Implement Total Quality Management A three-dimensional Learning Experience to Develop Total Quality Management Skills Estimating Quality Costs by Computer Simulation Applications and Examples of Quality Control Software Assessing Business Pedagogy A Demonstration of an Experiential Process for Exploring Quality and Productivity Improvement Processes An Action-Ethics Dilemma: A Demonstration Org Sim Jr.: A 2-3 Hour Version of the 2-Day Blanchard/Murrell Organization Simulation Building Buildings: An Experiential Exercise in Organizational Structure, Communication, Leadership and Group Dynamics Expert Systems for Organization Design: A Demonstration A Demonstration of Product Quality in a Business Simulation: Version 2 of CEO Two Revolutions, Total Quality Leadership, and the Baldy: The Story of Milliken Total Quality after the Award - The Xerox Story Building a Competitive Advantage through Customer Satisfaction and Reengineering Human Resource Planning: Managing the Only Renewable Resource for a Competitive Advantage Using Simulations to Teach International Issues: An analysis of the Multinational Management Game's Learning Environment Quality Function Deployment: A Tutorial Care and Nurturing of Teams Making a Good Thing Better: Adding TQM to Participative management Empowering Organizations to Redesign and Transform Themselves - Eastman Chemical Using Simulations in Field Management Development of an International Life Insurance Company Reinforcing the TQ Environment via Simulation Transforming a Business College into a Total Quality College