- A significant portion of quality related costs is incurred due to variation in process

output. Thus, manufacturing companies strive to continually improve processes via

reduction in process variation. An important mechanism for reducing process variation
is for the manufacturer to commit to a quality improvement philosophy and strategy that
fosters continuous process learning and improvement.
- When considering the relationship between learning and process improvement, it is
useful to view organizational learning as being either autonomous or induced (Levy,
1965). Autonomous learning is associated with learning by doing and captures the
efficiency gained through repetitive implementation of tasks and experience. Induced
learning is generated by conscious managerial or engineering actions that improve the
efficiency of the system through changes in the technology, the underlying processes,
and physical or human capital. Some specific examples of such actions are engineering
design changes, and personnel training programs (Adler and Clark, 1991).

. Today, the concept of learning curve effect is widespread and important in both the
private and public sectors. In strategic management, for example, the existence of such
learning curve effect can provide the rationale for a pricing and marketing strategy in
which producers initially price low in order to expand sales and gain market penetration
rapidly, thereby quickly accumulating experience and exploiting cost-reducing effects of
such learning (Spence, 1981). The effect of learning curves on optimal pricing policies,
make-or-buy decisions and consumers' welfare are being modelled and analyzed (see
for example, Majd and Pindyck 1989, Young 1991)

" Li and Rajagopalan (1998) and Serel et al. (2003) consider deterministic models in
which the firm benefits from learning by doing and process- and-quality improvement
efforts.
" Zhu et al. (2007) investigate whether the buyer or the supplier should invest in the
suppliers quality improvement and how that affects the lot-sizing decisions.

< Poor quality products decrease customer satisfaction, reduce efficiency and increase
the cost of business operations.
< Rosenblatt and Lee (1986) formulated and analyzed a similar model that considers
investment in process improvements. In a subsequent paper, Lee and Rosenblatt (1987)
considered the use of process inspection during a production run so that the shift to out-
of-control state can be detected and restoration made earlier.
< Porteus (1989) refined Porteus original work to allow smaller investments over time
with potential process improvement of random magnitude. Chand (1989) validated
Porteus model when learning effect is present in setups and process quality.
< Hong et al. (1993) established the relationship between process quality and
investment.
< Chen and Tsou (2003) developed a static financial model on quality investment with
Taguchis perspective of poor quality in a production system.
< In this paper, based on the study of Chen and Tsou (2003), we propose a quality
improvement model with asymmetrical truncated loss function to analyze the cost on
quality improvement in a production system.

> Variance reduction of a particular supplier's process requires knowledge of what

influences that supplier's process variation so that specific and appropriate variance
reduction mechanisms can be determined and implemented. Variance reduction can also
be achieved from an investment in and commitment to continuous learning.
(Moskowitz, 2001)
> Investments in learning are associated with the costs of prevention and appraisal
technologies used for improving processes. Fine's [6] quality-based learning model
included both induced learning and autonomous learning.
> The proposed models differ with respect to a process's learning investment function,
and are used to assess the impact of different learning investment functions on variance
reduction targets. Since both the manufacturer and suppliers benefit from investments in
learning, we also develop a model for rationally partitioning these investments among
the beneficiaries. (Moskowitz, 2001)
> The tradeoff between investments in learning and the resulting reduction in cost of
quality (due to continuous learning) that establishes appropriate learning rates.
(Moskowitz, 2001)
, Moskowitz et al. (1997) proposed methodologies that incorporated information on
investment in and commitment to continuous learning that manufacturers could use to
assess quality improvement targets for suppliers.
, In the next section we develop models for determining variance allocation targets that
account for investments in learning and the resulting reductions in cost of quality.
, Cost of quality is modelled as a quadratic function (Taguchi 1986), such that the
expected cost is a function of the variances of supplier processes.
, Moskowitz et al. (1997) proposed an approach that accounts for the fact that suppliers
and manufacturers must invest in learning to improve quality, namely a reduction in
process variance.
, Contemporary research and experience in quality (Taguchi [17]) has shown that
expected quality costs are directly influenced by process variance.

Competition among manufacturers is getting tighter force the manufacturing

company should have a competitive advantage compared to other companies. The
current challenge is to reduce the cost of production of the products offered in the
market. But not only costs to be considered, there are several other aspects that need
attention of company one of which is the quality of a product. Manufacturing company
must be able to produce high quality products with low production cost. To produce
high-quality products, manufacturing company need attention to determining how the
production process of each component of the product. Previously, the company should
first determine the components of the product should be produced (make), taken from
the supplier (buy) or do both. Quality, price, process capability are several factors that
must be considered in these elections.
After deciding on a make or buy analysis, companies are still required to get a
better quality in order not only to have a competitive advantage, but also to improve
customer satisfaction. So as to create a good relationship between the company and the
customers that benefit both parties. One way to do is to do quality improvement (quality
improvement). In order to achieve the desired quality improvement, the company issued
a number of charges related to the quality targets such as the cost of quality (quality
cost) or it could be investment quality (quality investment).
 Research on the relationship of quality improvement and quality investment has
been developed by several researchers. One of them Sou and Chen (2005) who
developed a model to improve the quality of the assembly where the seat of the car,
taking into account the cost of production and quality of investment. In addition to pass
up quality investment to improve the quality, there are other investments that can be
used is learning investment.
The relationship between the concept of the learning process (learning curve) and
quality improvement in the form of learning investment, are still rarely studied because
the concept of prior learning curve more often associated with inventory and lot sizing.
Development of a model system for minimizing the cost of quality cost allocation target
of quality improvement by using the learning curve was first developed by Moskowitz
et al. (2001). With the model can be known of the investment collaboration between
manufacturers and suppliers in quality improvement (through the reduction of variance)
and the gains producers by maximizing the ROI (Return on Investment). This is the
basis of this study, which will be developed a model that combines the make or buy
analysis and quality improvement by learning investment. By using a model that has
been developed by Puspitoningrum (2015) and Moskowitz et al. (2001) as the basis for
research. This study discusses the improvement of the quality of the learning
investments in process and supplier selection model based on considerations of cost of
manufacturing and the cost of fuzzy quality loss.