**2. Research methods**

The primary method for data analysis that has been used is Taguchi's method, which defines quality from the perspective of cost minimization and the subsequent loss to society. Based on his definition about quality management, continuous, consistent, and targeted actions are required to achieve minimum variability of the logistics services offered. According to Taguchi, the efforts should focus on the following two aspects: defining the combination of factors that have the lowest impact on any deviation from quality, and adjusting those factors that are the cause for the deviation from the set target of the logistics services. Based on the results obtained from Taguchi's loss function, the contribution of the different factors that could have an effect on the deviation from the customer's expectations for high-quality logistics services can be quantified. This can be used for initiating improvements that could have a positive impact in terms of satisfying those expectations.

### **2.1 Stages of Taguchi's method application for this study**

Taguchi's method was applied in two stages:


### **2.2 Method for collection of data for analysis**

The proposed data to be evaluated have been taken from the annual financial statements of an operating logistics company in the food sector and have been subsequently divided into three main groups: for prevention and avoidance of nonconforming quality; for quality evaluation and control; for covering the costs for nonconforming quality


#### **Table 1.**

*Variable information.*

of the logistics services. The information collected about the last two-year period has been summarized in tables in order to visually illustrate the potential impact and the actual improvement of the economic result. After the final data from the studied twoyear period were collected (before and after the introduction of the changes in the cost structure), those data were summarized and presented in **Table 1**.

By observing **Table 1**, it can be seen that the costs for improvements after the introduction of the changes are two times greater than the costs for prevention and control, whereas the costs for covering losses as a result of nonconforming logistics services have decreased by half as compared to the period before the implementation of the changes. The change in the cost structure based on the pre-defined three groups has allowed for the practical application of Taguchi's principle that the nonconforming logistics service cannot be improved through the process of control or covering the losses from the nonconformity after the service has been provided. The application does not have the potential to create a conforming service, but just to identify the conforming and nonconforming services. Based on the data obtained, the experimental design was built and a questionnaire was generated.

#### **2.3 Evaluation collection method and discussion method**

The data collection for the study was performed via telephone and online meetings in focus groups by taking into account all the restrictions imposed in relation to the pandemic. All participants in the study are currently managers in organizations where the main scope of business is the provision of logistics services in the field of trade and delivery of food products to wholesalers.

The participants in the study were selected based on their management experience and, in particular, their experience in the field of logistics services quality management costs. The required criterion for participation was at least 10 years of experience. Initial informative telephone conversations about the study and its methods, including the observation of all requirements of the relevant legislation related to personal data protection, were performed with potential participants in the study. Only 5 out of a total number of 20 potential participants did not agree to participate. The participants who confirmed participation received a questionnaire. The main purpose of this questionnaire was to study the potential attitudes and evaluations of the participants regarding the need of change in the structure of quality management costs. The study was performed in two consecutive panels in online meetings with a discussion in focus groups held in-between. The evaluation of the participants' opinion was performed based on a 100 point scale ranging from 1 to 100. The questionnaire of the study is presented in **Table 2**.


**By using the 100-point scale (where 1 is the lowest value and 100 is the response with the highest value), please, evaluate which, in your opinion, would be the most suitable cost structure for logistics services quality management represented in 8 different categories.**

#### **Table 2.**

*Questionnaire of the study.*

After the study, the participants' responses were averaged and summarized for further analyses using Taguchi's method.

The method used allows on one hand a comparison to be made, while on the other to quantify the difference between the target function (optimum ratio between the quality management costs) and its actual manifestation. The objective was to find a solution for minimizing deviations from the target function for logistics services in the food sector.

#### **3. Results**

In the course of the study, Taguchi's principles and methods for quality management were used to identify the optimum ratio between the quality management costs. The first principle that was applied is related to the statement that quality should be designed in the logistics service before offering that service on the market and, respectively, a strategy should be undertaken to increase the prevention costs (designing conforming quality) at the expense of the other costs.

Based on the experimental design, further calculations were made to find the contribution of the increased or decreased share of certain overheads to the achievement of a conforming service impacted to the lowest possible extent by the other factors. The data obtained from the two focus group sessions held were averaged and entered in **Table 3**.

Based on the results from **Table 3**, the experts have given a significantly lower number of points to the ratio of costs in the cases where there is an increase in the costs for operations associated with the rectification of problems, rather than preventive actions. It was concluded that this was the right approach; however, despite this, it is the author's view that logistics organizations practically continue using their entire potential not for the development of the types of services offered on the market, but for the rectification of problems that have occurred in the course of providing those services. The reasons for that could be related to the fact that often when designing the actual services, the processes are dragged over time, which in turn, may

*Quality Management Costs in Logistics DOI: http://dx.doi.org/10.5772/intechopen.103786*


#### **Table 3.**

*Experimental design (response 1 and 2).*

lead to a delay. Therefore, this process often needs to be compensated by reducing the time limits under signed contracts and by adjusting all the details and parameters related to the negotiation of the logistics service. As a result, certain logistics operations are skipped, which are subsequently performed without actually specifying their parameters. This, on the other hand, creates more favorable conditions for customer claims and undertaking actions to increase the control in order to avoid such nonconformity in the future. The higher level of control leads to an increase in costs and does not guarantee that the services will be conforming if the conditions that lead to the presence of claims remain unchanged.

The analysis of controllable factors that create conditions for deviations in the logistics services has been studied with respect to the contribution of costs for the different operations to the total operational costs. These costs include both the costs for planning the logistics services and the costs related to the control of those services and compensations to customers related to claims and returns, replacement, or repeated implementation of the logistics operations. It is the author's view that claims could be minimized by designing logistics services that are needed by the customer rather than services that the organization is capable to provide. A number of studies have come to the conclusion that the prevention of claims is more efficient than covering the costs once a claim has been filed and, respectively, could result in greater customer satisfaction [43–47].

Based on the data collected, Taguchi's model has been created, where the ratio LS means (Signal-to-Noise ratios) has been calculated. It defines the ratio between the mean value of the share of each cost from the total costs and the standard deviation. The variability of the analyzed indicators considered significant by the experts for the provision of a conforming service, defined by their standard deviation from the average value, is presented in **Figure 2**.

The results presented in **Figure 2** show that prevention costs have been evaluated as the most significant factor with positive impact, followed by the positive impact of the costs for control. The influence of the increase in the costs for nonconforming logistics services has been assessed as negative. The multiple criteria used by the logistics operators for calculation of the services are related to the satisfaction with their expected quality and are hard to quantify. The studies performed so far show that investing in the design of services has a significantly more positive impact on the expected quality than investment in a higher level of control on the performance of those services (the prevention costs and the costs for control are equally increased by 50 units).

#### **Figure 2.**

*Signal-to-noise ratios.*

Taguchi's approach thus requires seeking an appropriate solution for reducing the variations applied to the expected quality of the logistics operations and provides an opportunity to find results for lower deviation from the target function. The model these decisions can be based on, so that the variations in the logistics services are lower than expected, is presented in **Table 4**.

The studied factors are statistically significant (at 0.05), which allows an optimum ratio to be set between the studied costs so that the deviation from the target function


#### **Table 4.**

*Model parameters (standard deviations).*

*Quality Management Costs in Logistics DOI: http://dx.doi.org/10.5772/intechopen.103786*

#### **Figure 3.**

*LS means (means prevention costs, control costs, cost of nonconformities).*

is as low as possible. **Table 4** equally shows the statistical significance of each type of costs and their contribution to the achievement of an optimum combination of those costs. According to the feedback provided by the questionnaires, the most important factor in quality management is cost prevention because the absolute value of this factor is the highest. It can be stated that the prevention costs and the costs for control on the processes in the specific case that was studied were increased by the same number of units; however, the prevention costs demonstrated a much higher effect on the target function.

These results are confirmed by the main effects graphs in **Figure 3**.

Logistics organizations should invest in operations for the prevention of nonconformities in order to decrease the variability in the target function, even if the causes of the variations are not eliminated.

It has been practically demonstrated that the costs for eliminating the variation in the target function are very high. A more feasible and practical solution is to just change the structure of the costs or to control the factors that are more significant and have a greater impact on the target function. This can be achieved without increasing the total expenses or with a minimum increase resulting just from the redistribution of costs in the proper direction. Furthermore, the overheads that do not have a positive impact on the variations in the target function could be decreased and thus invested properly, in areas where their impact could be more favorable. This is what the application of Taguchi's method on the structure of quality management costs in logistics allows the user to do – to calculate the contribution of the three cost groups in order to achieve an optimum effect in the target function.
