Quality Management Costs in Logistics

*Marieta Stefanova*

#### **Abstract**

The minimization and elimination of deviations from quality that could cause a failure in the logistics system should be identified at an early stage in order to reduce the costs for recovering the system to its normal operation. The objective of this study is to analyze the contribution of prevention costs related to quality management to the total costs by focusing on the need to undertake priority preventive actions to ensure logistics services that meet the customer's quality requirements. The methodology of the study includes the integrated application of conventional scientific methods for comparative analysis and Taguchi's design for accounting regarding the primary costs for quality management with the predominant use of qualitative analysis. By applying these methods, the following groups of costs have been analyzed: prevention and avoidance of nonconforming quality; quality evaluation and control; and covering the costs for nonconforming quality of the logistics services. The contribution of the three groups of costs has been studied. Based on the analyses, this paper comes to the conclusion that the management of those costs by groups of factors for incurring them has the potential to contribute to the improvement of the quality of logistics.

**Keywords:** costs, logistics, nonconformities, quality

#### **1. Introduction**

The costs for maintaining the quality of the logistics services at the level of the customer's expectation are associated with the achievement of high efficiency of the processes [1, 2], better quality of the incoming material flows [3], and performance of the equipment and inventories without failure [4, 5]. The achievement of the "Justin-time", JIT principle for all products delivered requires targeted managerial efforts for maintaining the continuity of the logistics processes [6–10], ensuring efficient human resource management [11–13], and optimal utilization of the warehousing potential [14–17]. The identification, minimization, and elimination of deviations from set quality levels and the causes for failure of the system should be identified at the earliest possible stage in order to reduce the expenses for recovering the system to its normal operation. The level of quality has a positive impact on the implementation of the selected logistics strategy [18–21], whereas the low level of quality is an indicator of the poor efficiency of the supply chain [22]. The main objective of the quality management processes is to ensure the effective performance of the logistics services. It has been concluded that when the quality management processes are operated as a

system, they have a much more positive impact on the performance of the individual components of the system rather than the contrary. It has also been postulated that certain key areas of the logistics operations have a decisive impact on the efficiency of the logistics system, such as, for example, transportation and storage operations.

To analyze the costs for maintaining required quality levels, the components of those costs (**Figure 1**), need to be clarified:

Improvement of the logistics system efficiency is a key factor for ensuring products that meet demand and the flawless management of the organization [23–27]. Logistics operators that organize the supply chain by setting targets and results based on a limited budget manage to achieve growth in their revenues and assets, and, at the same time, reduce their operational costs [28, 29]. Due to the constantly emerging risks in the operations in the real economy where the logistics operations take place, it is often necessary to respond to the specific situation for overcoming the bottlenecks without considering the strategic guidelines for business development [30]. This is why the systems that are very flexible and capable of changing together with the market and the changes in the external environment are the most rapidly developing ones. In essence, the purpose of logistics operations can be defined as the effective and timely movement of goods to the places where the customer needs them at a reasonable price [31]. However, there are often restrictive conditions for the fulfillment of those purposes, and the appropriate equipment for loading and moving the transport vehicles is not always available when they are needed. In addition, the capacity of each logistics warehouse is strictly confined and fixed. There is competition in the sector of logistics, too. Therefore, the business needs to focus on its main competence and outsource to external contractors those services, the operation of which causes unjustified losses of resources, in order to achieve effective management of the costs for quality improvement. Actually, the main



#### **Figure 1.**

*Quality assurance-specific costs.*

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

purpose of cost optimization is to practically [32, 33] satisfy the customer's requirements by reducing the time for making the delivery. The main impediment to achieving this purpose is caused by the limited possibility to transfer and receive information about the actual demand in real-time.

The main problem about minimizing the costs for achieving the logistics purposes is related to the understanding about the management of the system itself as one that distributes the cargo ("push") and one that requires distribution of the cargo where necessary and based on a customer's order ("pull") [34]. The first type of system is more appropriate in the case where no exact information about the need of goods is available. However, in this case, if demand is significantly higher than supply, distribution of scarce goods and priority servicing of selected customers is needed. The use of mathematical methods for planning routes, occupation of the warehousing facilities, and temporary hiring of workers can help to reduce costs. When accounting for the total operational overheads, the expenses for handling, storage, and transportation of the goods should be accounted for based on the main cost items. This can be done by identifying all the resources (including human resources), the packaging and repackaging operations performed, the processes, and the methods used for evaluation and control in order to ensure the overall performance of the process. In other words, the total costs for logistics are the sum of all costs incurred for the management and implementation of all processes and operations related to the logistics operations. Generally, the total costs can be divided into the following three groups:


There is an interesting approach in the control of quality management costs, which was developed by Taguchi [35]. This method focuses on the causes for deviations from the quality and on establishing clearer criteria for defining the critical boundary that distinguishes between conforming and nonconforming services [36]. Taguchi's contribution to quality management is related to the following principle that any variations and deviations in the function of quality are the results of random and nonrandom factors and losses are observed when the variation results in conditions where the product or service is on the exact boundary of the target conformity value [37]. This is the quadratic loss function since it is assumed that when the product or service is at its target value, the loss will be zero. According to Diallo, Khan, and Vail, the relationship between quality improvement by decreasing the variations and the costs can be analyzed by using Taguchi's function. Many researchers have also applied Taguchi's method in the field of logistics services [38–41].

The contribution to the reduction of the total operational costs for prevention of nonconforming logistics services as compared to the increase in the costs for their management and their relationship to the costs for monitoring and control in logistics services has not been studied. A number of logistics organizations have not focused on this analysis and, as a result, perform restructuring or investments which do not yield the expected positive outcome. It is the author's view that logistics service providers should draw their attention to investment in quality management related to the prevention of nonconformities. At the same time, logistics service providers should exercise more effort on the potential opportunities for the development of the actual

logistics services and the service processes. This study offers a practical solution for management and analysis for measuring these qualitative changes.

The objective of the study is to analyze the contribution to total costs of the expenses for prevention related to quality management in logistics by focusing on the need to undertake priority preventive actions to ensure the provision of logistics services that meet the customer's quality requirements. By using the applied methods, this study analyses the contribution to quality improvement of the costs attributed to the prevention and avoidance of nonconforming quality, for quality evaluation and control, and for covering the expenditures for nonconforming quality of the logistics services. The relationship between these groups of costs in quality management has been identified by means of structural modeling, which helps to establish the contribution of the costs to the achievement of sustainable quality of the logistics services.
