learning & experience curve

8/3/2019 Learning & Experience Curve

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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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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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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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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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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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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

learning & experience curve

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