B - 1

B Experience CurvesPowerPoint presentation to accompany PowerPoint presentation to accompany Heizer, Render, and Al-Zu’biHeizer, Render, and Al-Zu’biOperations Management, Operations Management, Arab World EditionArab World Edition

Original PowerPoint slides by Jeff HeylOriginal PowerPoint slides by Jeff HeylAdapted by Zu’bi Al-Zu’biAdapted by Zu’bi Al-Zu’bi

B - 2

OutlineOutline

What is a Learning Curve? Learning Curves in Services and

Manufacturing Applying the Learning Curve

Arithmetic Approach Logarithmic Approach Learning-Curve Coefficient Approach

B - 3

OutlineOutline

Strategic Implications of Learning Curves

Limitations of Learning Curves

B - 4

Learning ObjectivesLearning Objectives

When you complete this module you should be able to:When you complete this module you should be able to:

1. Define a learning curve2. Use the arithmetic concept to

estimate times3. Compute learning-curve effects with

the logarithmic and learning-curve coefficient approaches

4. Describe the strategic implications of learning curves

B - 5

What is a Learning Curve?What is a Learning Curve?

Based on the premise that people and organizations become better at their tasks as the tasks are repeated

Time to produce a unit decreases as more units are produced

Learning curves typically follow a negative exponential distribution

The rate of improvement decreases over time

B - 6

Learning Curve EffectLearning Curve Effect

Figure B.1

Cos

t/tim

e pe

r rep

etiti

on

Number of repetitions (volume)0

B - 7

Learning CurvesLearning Curves

T x Ln = Time required for the nth unit

where T = unit cost or unit time of the first unitL = learning curve raten = number of times T is doubled

First unit takes 10 labor-hours70% learning curve is presentFourth unit will require doubling twice — 1 to 2 to 4

Hours required for unit 4 = 10 x (.7)2 = 4.9 hours

B - 8

Learning Curve in Services and ManufacturingLearning Curve in Services and Manufacturing

Table B.1

ExampleImproving

ParametersCumulative Parameter

Learning-Curve Slope

(%)Model -T Ford

productionPrice Units produced 86

Aircraft assembly

Direct labor-hours per unit

Units produced 80

Equipment maintenance at GE

Average time to replace a group of parts

Number of replacements

76

B - 9

Learning Curve in Services and ManufacturingLearning Curve in Services and Manufacturing

Table B.1

ExampleImproving

ParametersCumulative Parameter

Learning-Curve Slope

(%)Steel production Production worker

labor-hours per unit produced

Units produced 79

Integrated circuits

Average price per unit

Units produced 72

Handheld calculator

Average factory selling price

Units produced 74

B - 10

Learning Curve in Services and ManufacturingLearning Curve in Services and Manufacturing

Table B.1

ExampleImproving

ParametersCumulative Parameter

Learning-Curve Slope

(%)Disk memory

drivesAverage price per bit Number of bits 76

Heart transplants

1-year death rates Transplants completed

79

Cesarean section baby deliveries

Average operation time

Number of surgeries

93

B - 11

Uses of Learning CurvesUses of Learning Curves

Internal: labor forecasting, scheduling, establishing costs and budgets

External: supply chain negotiationsStrategic: evaluation of company and

industry performance, including costs and pricing

B - 12

Arithmetic ApproachArithmetic Approach

Simplest approach Labor cost declines at a constant rate,

the learning rate, as production doubles An example using an 80% learning curve

Nth Unit Produced Hours for Nth Unit1 100.02 80.0 = (.8 x 100)4 64.0 = (.8 x 80)8 51.2 = (.8 x 64)

16 41.0 = (.8 x 51.2)

B - 13

Logarithmic ApproachLogarithmic Approach

Determine labor for any unit, TN , by

TN = T1(Nb)

where TN = time for the Nth unitT1 = hours to produce the first unitb = (log of the learning rate)/(log 2)

= slope of the learning curve

B - 14

Logarithmic ApproachLogarithmic Approach

Determine labor for any unit, TN , by

TN = T1(Nb)

where TN = time for the Nth unitT1 = hours to produce the first unitb = (log of the learning rate)/(log 2)

= slope of the learning curve

LearningRate (%)

b

70 – .515

75 – .415

80 – .322

85 – .234

90 – .152Table E.2

B - 15

Logarithmic ExampleLogarithmic Example

Learning rate = 80%First unit took 100 hours

TN = T1(Nb)T3 = (100 hours)(3b)

= (100)(3log .8/log 2)= (100)(3–.322)= 70.2 labor hours

B - 16

Coefficient ApproachCoefficient Approach

TN = T1C

where TN = number of labor-hours required to produce the Nth unitT1 = number of labor-hours required to produce the first unitC = learning-curve coefficient found in Table E.3

B - 17

Learning-Curve CoefficientsLearning-Curve CoefficientsTable B.3

70% 85%Unit Number

(N)Unit Time

Total Time

Unit Time

Total Time

1 1.000 1.000 1.000 1.0002 .700 1.700 .850 1.8503 .568 2.268 .773 2.6234 .490 2.758 .723 3.3455 .437 3.195 .686 4.031

10 .306 4.932 .583 7.11615 .248 6.274 .530 9.86120 .214 7.407 .495 12.402

B - 18

Coefficient ExampleCoefficient Example

First boat required 125,000 hoursLabor cost = $40/hourLearning factor = 85%

TN = T1CT4 = (125,000 hours)(.723)

= 90,375 hours for the 4th boat

90,375 hours x $40/hour = $3,615,000

TN = T1CT4 = (125,000 hours)(3.345)

= 418,125 hours for all four boats

B - 19

Coefficient ExampleCoefficient Example

Third boat required 100,000 hoursLearning factor = 85%

100,000.773

= 129,366 hours

New estimate for the first boat

B - 20

Strategic ImplicationsStrategic Implications

To pursue a strategy of a steeper curve than the rest of the industry, a firm can:1. Follow an aggressive pricing policy2. Focus on continuing cost reduction

and productivity improvement3. Build on shared experience4. Keep capacity ahead of demand

B - 21

Industry and Company Learning CurvesIndustry and Company Learning Curves

Figure B.2

Pric

e pe

r uni

t (lo

g sc

ale)

Accumulated volume (log scale)

Gross profit margin

Loss

(a)

(c)

(b)

Company cost

Industry price

B - 22

Limitations of Learning CurvesLimitations of Learning Curves

Learning curves differ from company to company as well as industry to industry so estimates should be developed for each organization

Learning curves are often based on time estimates which must be accurate and should be reevaluated when appropriate

B - 23

Limitations of Learning CurvesLimitations of Learning Curves

Any changes in personnel, design, or procedure can be expected to alter the learning curve

Learning curves do not always apply to indirect labor or material

The culture of the workplace, resource availability, and changes in the process may alter the learning curve