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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
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OutlineOutline
What is a Learning Curve? Learning Curves in Services and
Manufacturing Applying the Learning Curve
Arithmetic Approach Logarithmic Approach Learning-Curve Coefficient Approach
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OutlineOutline
Strategic Implications of Learning Curves
Limitations of Learning Curves
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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
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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
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Learning Curve EffectLearning Curve Effect
Figure B.1
Cos
t/tim
e pe
r rep
etiti
on
Number of repetitions (volume)0
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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
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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
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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
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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
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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
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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)
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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
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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
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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
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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
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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
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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
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Coefficient ExampleCoefficient Example
Third boat required 100,000 hoursLearning factor = 85%
100,000.773
= 129,366 hours
New estimate for the first boat
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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
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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
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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
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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