Two stages optimization model on make or buy analysis and quality improvement considering learning and forgetting curve
Journal of Industrial Engineering and Management
JIEM
2013-0953
Two Stages Optimization Model on Make or Buy Analysis and Quality Improvement Considering Learning and Forgetting Curve
Mega Aria Pratama
Cucuk Nur Rosyidi
Eko Pujiyanto
Universitas Sebelas Maret Surakarta (Indonesia)
Purpose: The aim of this research is to develop two stages optimization model on make or buy analysis and quality improvement considering learning and forgetting curve. The first stage model is developed to determine the optimal selection of process/suppliers and the component allocation to the selected process/suppliers. The second stage model deals with quality improvement efforts to determine the optimal investment to maximize Return on Investment (ROI) by taking into consideration the learning and forgetting curve. Design/methodology/approach: The research used system modeling approach by mathematically modeling a system which consists of a manufacturer with multi suppliers where the manufacturer tries to determine the best combination of their own processes and suppliers to minimize certain costs and provides funding for quality improvement efforts for their own processes and suppliers. Findings: This research provides better decisions in make or buy analysis and to improve the components by quality investment considering learning and forgetting curve. Research limitations/implications: This research has limitations concerning investment fund that assumed to be provided by the manufacturer which in the real system the fund may be provided by the suppliers. In this model, we also do not differentiate between two types of learning, namely autonomous and induced learning. Practical implications: This model can be used by a manufacturer to gain deeper insight in making decisions concerning process/suppliers selection along with component allocation and how to improve the component by investment allocation to maximize ROI. Originality/value: This paper combines two models, which in previous research both models are discussed separately. The inclusion of learning and forgetting also gives a new perspective in quality investment decision.
quality improvement; quality investment; learning and forgetting curve; return on investment
1. Introduction
In a tight market competition, a manufacturing company must formulate the best strategy to win the competition.
According to
Mustajib and Irianto (2010)
, a manufacturing company has to produce not only a good product at a
competitive price, but also on-time delivery and fast service to satisfy the customers. But, it becomes a challenge for
manufacturing company to fulfill those requirements by improving their production eficiency. Greater eficiency will
make a manufacturing company produces their product at lower cost and will get better revenue without
compromising the quality
(Kumar & Sosnoski, 2009)
.
Generally, a manufacturing company will use their own resources to produce their needed component for final
product assembly. It is known as in-house production. By use in-house production method, manufacturing
company can maximize the utilization of their production facilities and get better control of the quality and cost.
Unfortunatelly by the growth of the market, a manufacturing company is often constrained by their capacities
and capabilities to fulfill the market demand. So, to overcome this problem, they usually use an instant solution
called outsourcing. According to
Belcourt (2006)
, manufacturing companies were triggered to an outsourcing
option since many outsourcing companies provide services on workers, machines or even production activities.
But, outsourcing decision is not an easy task. Suppliers have many uncertainties in terms of cost, quality and
delivery (Teeravaraprug, 2008). Manufacturing company has to choose the suppliers that meet their standard of
performance.
After manufacturing company selects the appropriate suppliers, there is another problem that follows about
how to allocate the components to the selected prcesses and suppliers. Rosyidi, Pratama, Jauhari, Suhardi and
Hamada (2016) developed a make or buy analysis model to solve the above problems. In the model, a
manufacturing company will be able not only to choose the best alternative that give the minimal cost, but also
the allocation for each choosen alternative. The objective function of the model is to minimize the total cost
which consists of manufacturing cost, purchasing cost, quality loss, scrap cost, and lateness cost. The
manufacturing cost is resulted from the total cost of in-house production activities, while purchasing cost
from the total cost of outsourcing activities. Quality loss dealt with the customer quality cost, while scrap cost
dealt with the cost from discarding the component which did not conform to the specifications. Lateness cost
is the penalty cost for company if they pass the due date to deliver the product to their customer
(Rosyidi,
Fatmawati & Jauhari, 2016) (...truncated)