Abstract for: Using System Dynamics Approach to Model Cost of Quality in the Procurement Process of the Construction Industry

The aim of this research is to develop the Cost of Quality (COQ) model for the procurement process of the construction industry and establish a general course of action for minimizing quality costs. A case study in a large Canadian construction company was conducted and the use of the Prevention-Appraisal-Failure (PAF) approach for the COQ model of the procurement process was explored. In contrast to the conventional COQ analysis we take into account not only the internal quality costs within the company, but also the costs of its suppliers. Several different policies were designed and their effects on quality costs investigated through System Dynamics (SD) simulation. The findings suggest that prevention costs should be increased to minimize failures. It was also found that appraisal cost is quite high in the procurement process and should be reduced in order to minimize overall COQ. However, this strategy could increase failure occurrences thereby damaging a company’s reputation. The possible reductions of appraisal cost in the construction companies should thus be carefully considered.