Learning curve

The experience of "learning curves" was first observed by the 19th Century German
psychologist Hermann Ebbinghaus according to the difficulty of memorizing varying
numbers of verbal stimuli. Subsequent learning about the complex processes of learning
are discussed in the Learning curve article.

The experienced learning rates for exploratory discovery and development processes,
for individuals and organizations, is more the focus of the main Learning curve article.

As individuals and/or organizations get more experienced at a task, they usually become
more efficient at it, following a progression of the learning first getting easier and then
harder as one approaches a limit. A "steep" learning curve, in colloquial usage, usually
means experiencing a large and increasing amount of effort for a constant amount of
learning, i.e. approaching a natural limit. Much the reverse is the meaning of a steep
slope in a learning progress curve. A learning progress curve is steep when very little
effort is required, as further discussed in the main article.

The rule used for representing the learning curve effect states that the more times a task
has been performed, the less time will be required on each subsequent iteration. This
relationship was probably first quantified in 1936 at Wright-Patterson Air Force Base in
the United States, where it was determined that every time total aircraft production
doubled, the required labour time decreased by 10 to 15 percent. Subsequent empirical
studies from other industries have yielded different values ranging from only a couple of
percent up to 30 percent, but in most cases it is a constant percentage: It did not vary at
different scales of operation. Learning curve theory states that as the quantity of items
produced doubles, costs decrease at a predictable rate. This predictable rate is described
by Equations 1 and 2. The equations have the same equation form. The two equations
differ only in the definition of the Y term, but this difference can make a significant
difference in the outcome of an estimate.

1. This equation describes the basis for what is called the unit curve. In this equation, Y
represents the cost of a specified unit in a production run. For example, If a production
run has generated 200 units, the total cost can be derived by taking the equation below
and applying it 200 times (for units 1 to 200) and then summing the 200 values. This is
cumbersome and requires the use of a computer or published tables of predetermined
values.

where

• is the number of direct labour hours to produce the first unit

• is the number of direct labour hours to produce the xth unit
• is the unit number
• is the learning percentage

1
Reasons for the effect

The primary reason for why experience and learning curve effects apply, of course, is the
complex processes of learning involved. As discussed in the, learning generally begins
with making successively larger finds and then successively smaller ones. The equations
for these effects come from the usefulness of mathematical models for certain somewhat
predictable aspects of those generally non-deterministic processes. They include:

• Labour efficiency - Workers become physically more dexterous. They 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.
• Better use of equipment - as total production has increased, manufacturing
equipment will have been more fully exploited, lowering fully accounted unit
costs. In addition, purchase of more productive equipment can be justifiable.
• Changes in the resource mix - As a company acquires experience, it can alter its
mix of inputs and thereby become more efficient.
• Product redesign - As the manufacturers and consumers have more experience
with the product, they can usually find improvements. This filters through to the
manufacturing process. A good example of this is Cadillac's testing of various
"bells and whistles" specialty accessories. The ones that did not break became
mass produced in other General Motors products; the ones that didn't stand the

2
 test of user "beatings" were discontinued, saving the car company money. As
General Motors produced more cars, they learned how to best produce products
that work for the least money.
• Network-building and use-cost reductions - As a product enters more
widespread use, the consumer uses it more efficiently because they're familiar
with it. One fax machine in the world can do nothing, but if everyone has one,
they build an increasingly efficient network of communications. Another example
is email accounts; the more there are, the more efficient the network is, the lower
everyone's cost per utility of using it.
• 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.

Experience curve discontinuities

The experience curve effect can on occasion come to an abrupt stop. Graphically, the
curve is truncated. Existing processes become obsolete and the firm must upgrade to
remain competitive. The upgrade will mean the old experience curve will be replaced by
a new one. This occurs when:

• Competitors introduce new products or processes that you must respond to

• Key suppliers have much bigger customers that determine the price of products
and services, and that becomes the main cost driver for the product
• Technological change requires that you or your suppliers change processes
• The experience curve strategies must be re-evaluated because
o they are leading to price wars
o they are not producing a marketing mix that the market values

Price war is a term used in business to indicate a state of intense competitive rivalry
accompanied by a multi-lateral series of price reduction. One competitor will lower its
price, then others will lower their prices to match. If one of them reduces their price
again, a new round of reductions starts. In the short-term, price wars are good for
consumers, who can take advantage of lower prices. Often they are not good for the
companies involved. The lower prices reduce profit margins and can threaten their
survival.

3
Examples

NASA quotes the following experience curves:

• Aerospace 85%
• Shipbuilding 80-85%
• Complex machine tools for new models 75-85%
• Repetitive electronics manufacturing 90-95%
• Repetitive machining or punch-press operations 90-95%
• Repetitive electrical operations 75-85%
• Repetitive welding operations 90%
• Raw materials 93-96%
• Purchased Parts 85-88%