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Learning andExperience Curve
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Based on the premise that people andorganizations become better at their tasksas the tasks are repeated
Time to produce a unit decreases as moreunits are produced
Learning curves typically follow a negativeexponential distribution
The rate of improvement decreases overtime
Learning Curve
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Cost/timeperrepeti
tion
Number of repetitions (volume)00
Learning Curve
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Concept of Learning Curve
The concept of the Learning Curve basically states that
there is less and less learning as more repetitive steps are
taken. The Boston Consulting Group conducted some
empirical studies and below are the conclusions from that
study:
The time required to perform a task decreases as the
task is repeated.
The amount of improvement decreases as more unitsare produced.
The rate of improvement has sufficient consistency to
allow its use as a prediction tool.
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Rate of Learning
The constant percentage bywhich the time of doubled
quantities decrease is called the
rate of learning. The slope of
the learning curve is 100 minus
the rate of learning.
For example, if the hours
between doubled quantities are
reduced by 20% (rate of
learning), it would be described
as a curve with an 80% slope(Ref Figure1).
Figure 1: Time per unit vs. Output
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Experience Curve
The experience curve differs from the learning curve. Thelearning curve describes the observed reduction in the number
of required direct labor hours as workers learn their jobs. The
experience curve by contrast applies not only to labor intensive
situations, but also to process oriented ones.
It states that the more often a task is performed, the lower will
be the cost of doing it. The task can be the production of any
good or service.
Each time cumulative volume doubles, value added costs
(including administration, marketing, distribution, and
manufacturing) fall by a constant and predictable percentage.
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Experience Curve
In the late 1960s Bruce Handerson of the Boston Consulting Group (BCG)
began to emphasize the implications of the experience curve for strategy.
The curve is plotted with cumulative
units produced on the horizontal
axis and unit cost on the verticalaxis. A curve that depicts a 30%
cost reduction for every doubling of
output is called an 70% experience
curve, indicating that unit costs
drop to 70% of their original level.
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Reasons for the effect
The primary reason for why experience and learning curve effects:
Labour efficiency - Workers become mentally more confident and
spend less time hesitating, learning, experimenting, or making
mistakes. Over time they learn short-cuts and improvements. This
applies to all employees and managers, not just those directly
involved in production.
Standardization, specialization, and methods improvements - As
processes, parts, and products become more standardized, efficiency
tends to increase. When employees specialize in a limited set of
tasks, they gain more experience with these tasks and operate at a
faster rate.Technology-Driven Learning - Automated production technology
and information technology can introduce efficiencies as they are
implemented and people learn how to use them efficiently and
effectively.
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Reasons for the effect
Better use of equipment - As total production increases,manufacturing equipment will be fully exploited, lowering fully
accounted unit costs. In addition, purchase of more productive
equipment can be justifiable.
Product redesign - As the manufacturers and consumers have more
experience with the product, they can usually find improvements. Thisfilters through to the manufacturing process.
Shared experience effects - Experience curve effects are reinforced
when two or more products share a common activity or resource. Any
efficiency learned from one product can be applied to the other
products.
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Learning curve
Standard time
Learningperiod
0.30
0.25
0.20
0.15
0.10
0.05
0 | | | | | |
50 100 150 200 250 300
Cumulative units produced
Pr
ocesstimeperun
it(hr)
Learning Curve
Figure 1 Learning Curve, Showing the Learning Period and
the Time When Standards Are Calculated
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Developing Learning Curves
In developing learning curves we make the
following assumptions
The direct labor required to produce the
n + 1st unit will always be less than thedirect time of labor required for the nth unit
Direct labor requirements will decrease at a
declining rate as cumulative production
increases
The reduction in time will follow an
exponential curve
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Developing Learning Curves
Using a logarithmic model to draw a learning curve, thedirect labor required for the nth unit, kn, is
kn =k1nb
where
k1 = direct labor hours for the first unit
n = cumulative numbers of units produced
r= learning rate (as decimal)
2log
log r
b!
Doubling of the quantity reduces the time per unit by (1 r)
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Developing Learning Curves
TABLE 1 | CONVERSION FACTORS FOR THE CUMULATIVE AVERAGE| NUMBER OF DIRECT LABOR HOURS PER UNIT
80% Learning Rate(n = cumulative production)
n n n
1 1.00000 11 0.61613 21 0.517152 0.90000 12 0.60224 22 0.51045
3 0.83403 13 0.58960 23 0.50410
4 0.78553 14 0.57802 24 0.49808
5 0.74755 15 0.56737 25 0.49234
6 0.71657 16 0.55751 26 0.48688
7 0.69056 17 0.54834 27 0.48167
8 0.66824 18 0.53979 28 0.47668
9 0.64876 19 0.53178 29 0.47191
10 0.63154 20 0.52425 30 0.46733
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Developing Learning Curves
TABLE 1 | CONVERSION FACTORS FOR THE CUMULATIVE AVERAGE| NUMBER OF DIRECT LABOR HOURS PER UNIT
90% Learning Rate(n = cumulative production)
n n n
1 1.00000 11 0.78991 21 0.725592 0.95000 12 0.78120 22 0.72102
3 0.91540 13 0.77320 23 0.71666
4 0.88905 14 0.76580 24 0.71251
5 0.86784 15 0.75891 25 0.70853
6 0.85013 16 0.75249 26 0.70472
7 0.83496 17 0.74646 27 0.70106
8 0.82172 18 0.74080 28 0.69754
9 0.80998 19 0.73545 29 0.69416
10 0.79945 20 0.73039 30 0.69090
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Using Learning Curves
EXAMPLE - 1
A manufacturer of diesel locomotives needs 50,000
hours to produce the first unit. Based on past experience
with similar products, you know that the rate of learning
is 80 percent.
a. Use the logarithmic model to estimate the direct laborrequired for the 40th diesel locomotive and the
cumulative average number of labor hours per unit forthe first 40 units.
b. Draw a learning curve for this situation.
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Using Learning Curves
SOLUTION
a. The estimated number of direct labor hours required to produce
the 40th unit is
k40 = 50,000(40)(log 0.8)/(log 2)
= 50,000(40)0.322
= 50,000(0.30488)
= 15,248 hours
For a cumulative production of 40 units and an 80 percent
learning rate, the factor is 0.42984. The cumulativeaverage direct labor hours per unit is 50,000(0.42984) =21,492 hours.
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Using Learning Curves
b. Plot the first point at (1, 50,000). The second units labor time is 80percent of the first, so multiply 50,000(0.80) = 40,000 hours. Plot the
second point at (2, 40,000). The third is 80 percent of the second, so
multiply 40,000(0.80) = 32,000 hours. Plot the point (3, 32,000). The
result is shown in Figure 2.
50
40
30
20
10
0 | | | | | | |
40 80 120 160 200 240 280
Cumulative units produced
Directla
borhoursper
locomotive(thousands)
Figure 2 The 80 Percent Learning Curve
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Example - 2
The first unit of a new product is expected to take 1000 hours tocomplete. If the rate of learning is 80 percent, how much time should
the 50th unit take?
SOLUTION
Givenk1 = 1,000 n = 50 r= 0.80
kn = k1nb
k50 = 1000(50)(log 0.8/log 2)
= 1000(50)0.32192
= 1000(0.283827)
k50 = 283.8 hours
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Example - 3
The manager of a custom manufacturer has just received a
production schedule for an order for 30 large turbines. Over the next
5 months, the company is to produce 2, 3, 5, 8, and 12 turbines,
respectively. The first unit took 30,000 direct labor hours, and
experience on past projects indicates that a 90 percent learning
curve is appropriate; therefore, the second unit will require only
27,000 hours. Each employee works an average of 150 hours per
month. Estimate the total number of full-time employees needed
each month for the next 5 months.
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Example - 3
SOLUTION
The following table shows the production schedule and cumulative
number of units scheduled for production through each month:
Month Units per Month Cumulative Units
1 2 2
2 3 5
3 5 10
4 8 18
5 12 30
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Example 3
We first need to find the cumulative average time per unit (using Table 1or excel calculator) and the cumulative total hours through each month.We then can determine the number of labor hours needed each month.
The calculations for months 1 5 follow.
MonthCumulative Average Time
per UnitCumulative Total Hours
for All Units
1 30,000(0.95000) = 28,500.0 (2)28,500.0 = 57,000
2 30,000(0.86784) = 26,035.2 (5)26,035.2 = 130,176
3 30,000(0.79945) = 23,983.5 (10)23,983.5 = 239,835
4 30,000(0.74080) = 22,224.0 (18)22,224.0 = 400,032
5 30,000(0.69090) = 20,727.0 (30)20,727.0 = 621,810
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Example 3
Calculate the number of hours needed for a particular month by
subtracting its cumulative total hours from that of the previous month.
Month 1:
Month 2:Month 3:
Month 4:
Month 5:
57,000 0 = 57,000 hours
130,176 57,000 = 73,176 hours
239,835 130,176 = 109,659 hours
400,032 239,835 = 160,197 hours
621,810 400,032 = 221,778 hours
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Example 3
The required number of employees equals the number of hoursneeded each month divided by 150, the average number of hours
each employee can work.
Month 1:
Month 2:Month 3:
Month 4:
Month 5:
57,000/150 = 380 employees
73,176/150 = 488 employees
109,659/150 = 731 employees
160,197/150 = 1,068 employees
221,778/150 = 1,479 employees
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Example 4
A company has a contract to make a product for the first
time. The total budget for the 38-unit job is 15,000 hours.
The first unit took 1000 hours, and the rate of learning is
expected to be 80 percent.
a. Do you think the 38-unit job can be completed within
the 15,000-hour budget?
b. How many additional hours would you need for a
second job of 26 additional units?
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Example 4
b.
Average64 = 1000(0.37382) = 373.82 hrs/pcTotal64 = 373.82(64) = 23,924 hours
Total64 Total38 = 23,924 16,581 = 7,343 additional hours required
SOLUTION
a.
Average38 = 1000(0.43634) = 436.34 hrs/pc
Total38 = 436.34(38) = 16,581 hours
They will have trouble meeting the 15,000 hour budget
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Managerial Considerations
The simpler the service or product, the less the
learning rate
The entire learning curve is based on the time
required for the first unit
Learning curves are used to greatest advantage in the
early stages of new product or service production
Implementing a team approach can change
organizational learning rates
Learning curves are only approximations
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Limitations of Learning Curves
Learning curves differ from company tocompany as well as industry to industry soestimates should be developed for each
organization
Learning curves are often based on time
estimates which must be accurate andshould be reevaluated when appropriate
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Limitations of Learning Curves
Any changes in personnel, design, orprocedure can be expected to alter thelearning curve
Learning curves do not always apply to indirectlabor or material
The culture of the workplace, resourceavailability, and changes in the process mayalter the learning curve
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