TOPIC 1

-LEARNING CURVE-
Learning Objectives
 To define learning curve and theory.
 To formulate learning curve formula,
models and example.
 To identify the pros and cons of learning
curve theory.
 To discover the application of learning
curve.
 To discuss the real world application of  Generally comes from increased efficiency
learning curve theory. with routines and procedures, but also with
the acquisition of knowledge to forecast and
ORIGIN adapt before errors are made.
 It was found at Boeing, the aircraft
manufacturing company, during WW-II
period, that the time taken to assemble an
individual aircraft declined as the number of
aircrafts assembled increased.
 The name given to this effect of increased
efficiency was Learning Curve (LC)
phenomenon. The phenomenon was tested
in a number of manufacturing setups across
the industries and it was found invariably
everywhere.
 However, the learning rate of laborers
differed from one industry to another.
THE CONCEPT
The mathematical expression of the phenomenon
that,
when complex and labor–intensive procedures
are repeated, unit labor time tend to decrease at
a constant rate.
LC models mathematically this reduction in unit
production time.
– Cima Official Terminology
The LC is based on the idea that labor hours
decrease in a definite pattern as labor operations are
 A learning curve is a correlation between a repeated. More specifically, it is derived from
learner's performance on a task and the statistical findings that as cumulative production
number of attempts or time required to doubles, cumulative average time required per unit
complete the task; this can be represented as will be reduced by some constant percentage, say
a direct proportion on a graph. 10% to 20%.
TERMINOLOGY  In aircraft industry, the percentage by which
cumulative average time per unit decreased
 Cumulative average time per unit - is was typically 80%.
reduced by a constant percentage each time
the cumulative quantity of units produced is  Similarly different learning rates were noted
doubled. for different industries.
 Cumulative production doubled - the
percentage states, the percentage of time that
will carry over to future repetitions of the
task when production is doubled.
 Cumulative average time - is the most
common way time is used in a measure.
 Learning rates -  or the learning curve
percentage (LR variable in the formula),
is the percentage subtracted from one
hundred percent to get the reduction
percentage. The reduction percentage
denotes the percentage decrease in unit time
or cost with every doubling of units
produced.
Learning curve
mathematical model

THE CONCEPT
 It was found that the cumulative average
time per unit decreased by a fixed
percentage each time the cumulative
production doubled.

How to solve the per unit hours and all unit

hours?
-Solve the given example if the production learning
rate is 80%.
 BENEFITS OF LEARNING THE CURVE
 Companies know how much an employee
earns per hour and can derive the cost of
producing a single unit of output based on
the number of hours needed.
 A well-placed employee who is set up for
success should decrease the company's costs
per unit of output over time.
THE SLOPE OF LC
 The slope of the learning curve represents
the rate in which learning translates into cost
savings for a company. The steeper the
slope, the higher the cost savings per unit of
output.

PLOT THE RESULT OF THE LEARNING

CURVE
  This standard learning curve is known as the
APPLICATIONS

80% learning curve. ‘’Every activity worth doing has a learning

curve’’.
 A steep learning curve means that you
quickly progress in performance with -Seth Godin
experience.
 Shallow learning curves are the ones in
which you do not improve very quickly with
performance.
 It shows that for every doubling of a
company's output, the cost of the new output
is 80% of the prior output.
 As output increases, it becomes harder and
harder to double a company's previous
output, depicted using the slope of the curve,
which means cost savings slow over time.
IMPORTANT NOTE
 The LC formula is used to estimate direct
labor time for a given number of units and
thus is helpful in the calculation of direct
labor cost estimates. Further, the learning
effect is applied to those variables also that
are dependent upon direct labor time for
their time and cost estimation.
 The concept of LC is not applied to direct
material costs or overhead costs relating to
production.
 The concept of LC is applicable where
operations are complex and carried out
manually by labor. Where operations are so
simple that apply very low level of
intelligence, there shall be little scope for
learning effect. Hence, there shall be no LC.

WEEK 14
-INVENTORY MANAGEMENT-
LEARNING OBJECTIVES
1 To discuss the different elements of inventory.
2 To identify the importance of supply chain
management.
3 To explain inventory control system.
4 To apply different ways on how to manage
inventory.
What is Inventory?
The assets are:
-Held for sale in the ordinary course of business; or
-In the process of production for such a sale; or
-In the form of materials or supplies to be consumed
in the production process; or
-In the rendering of services.
-A physical resource that a firm holds a stock with
the intent of selling it of transforming it into a
valuable state.
TYPES OF INVENTORY
Raw Materials
-Basic inputs that are converted into finished
product through the manufacturing process.
Work in Progress
-Semi-manufactured products that need some more
work before they become finished goods for sale.
Finished Goods
-Completely manufactured products ready for sale.
Supplies
- Office and plant cleaning materials that do not
directly enter production but are necessary for
production process and do not involve significant
investments.
INVENTORY MANAGEMENT
-The act or manner of managing, handling, directing
or controlling the flow of inventory.
DEMAND RELATED:
- Meet unexpected demands.
-Smooth seasonal or cyclical demands.
PRICING RELATED:
-Hedge unexpected demands.
-Take advantage of quantity discounts.
PROCESS AND SUPPLY SURPRISES
REALATED:
Internal – upsets in parts of or our own processes.
External – delays in incoming goods.
OBJECTIVES: INVENTORY MANAGEMENT
 To maintain an optimum size of inventory
for efficient and smooth production and
sales operations.
 To maintain a minimum investment in
inventories to maximize the profitability.
 Effort should be made to place an order at
the right time with right source to acquire
the right quantity at the right price and right
quality.
SUCCESS MANTRA
 Ensure a continuous supply of raw materials
to facilitate uninterrupted production.
 Maintain sufficient stocks of raw materials
in periods of short supply and anticipate
price changes.
 Maintain sufficient finished goods inventory
for smooth sales operation, and efficient
customer service.
 Minimize the carrying cost and time.
 Control investment in inventories and keep
it at an optimum level.
WHAT IF WE OVERACT?
 Unnecessary tying down of firm ’ s funds
and loss of profit. Excessive carrying costs.
 Risk of liquidity- difficult to convert into
cash.
 Physical deterioration of inventories while
in storage due to mishandling and improper
storage facilities.
WHAT IF ONE IS TOO COOL?
 Production hold-ups – loss of labour
hours.
 Failure to meet delivery commitments.
 Customers may shift to competitors
which will amount to a permanent loss
to the firm.
 May affect the goodwill and image of
the firm.
INVENTORY SYSTEMS
FACTORS
 Basis of ascertaining inventory.
 Calculation of inventory Calculation of cost
of goods sold.
 Lost goods
PERIODIC INVENTORY SYSTEM
 By actual physical count
 Directly by applying the method of
valuation of inventories
 Cost of goods sold = opening inventory +
purchases – closing inventory
 Cost of goods sold includes cost of lost
goods (if any)
PERPETUAL INVENTORY SYSTEM
 On the basis of records
 Closing Inventory = opening inventory+
purchases – cost of goods sold
 Directly calculated by applying the method of
valuation of inventories
 Cost of closing inventory includes cost of lost
goods (if any).
METHODS OF EVALUATION
-An inventory valuation allows a company
to provide a monetary value for items that make up
its inventory.
FIRST IN FIRST OUT (FIFO)
-Based on the assumption that the goods that
are received first are issued first.
LAST IN FIRST OUT (LIFO)
-Based on assumption that goods that are
received last are issued first.
WEIGHTED AVERAGE PRICE METHOD
-Based on the assumption that each issue of
goods consists of a due proportion of the earlier lots
and is valued at weighted average price.
EMERGING TRENDS IN INVENTORY
MANAGEMENT
Entering into long term contracts at a fixed price to
reduce uncertainties.
 Just-in-time.
 Kanbans – Japanese technique (Only
produce when demand comes).
 Internet based ordering systems.
 Supply chain management.
 Vendor development.
 Investment in plant and machinery.
INVENTORY CONTROL RESPONSIBILITY
 Purchasing naturally has vest interest in
inventories, even to the extend that in some
companies the purchasing and stores
functions are combined.
 Production looks after the work in progress.
 Logistics plays a major role in inventory
control
 Inventories are economic importance to
finance department.
 The fact that materials must be moved from
one place to another is of importance to
materials department.

WEEK 15
ECONOMIC ORDER QUANTITY (EOQ)
WHAT IS EOQ?
 Quantity of materials which can be
purchased at minimum costs.
 It is the size of the lot to be purchased which
is economically viable.
 The framework used to determine this order
quantity is also known Wilson EOQ Model
or Wilson formula.
-In determining EOQ, it is assumed that the cost of
managing inventory is made up solely of two parts;
a) Ordering Costs/ Buying Costs
b)Carrying Costs/ Holding Costs
b) Cost of storage which could have been
used for other purposes.
c) The loss of materials due to deterioration
and obsolescence.
d) Insurance costs.
e) Cost of spoilage in handling material
 The ordering cost is constant.
 The rate of demand is known, and spread
evenly throughout the year.
 The lead time is fixed.
 The purchase price of the item is constant
i.e. no discount is available.
 The replenishment is made instantaneously,
the whole batch is delivered at once
EOQ FORMULA

ORDERING COST / BUYING COST

 Ordering costs are the expenses your
company incurs to purchase and receive the EXAMPLE ON EOQ
products it stocks in its inventory.
 These ordering costs can include shipping
fees, unexpected transportation costs,
inspection fees and other expenses necessary
to acquire inventory products.
 Costs which are associated with the
purchasing or ordering of materials.
 These cost include:
a) Cost of staff posted for ordering of goods.
b) Expenses incurred on transportation of
goods purchased.
WHAT IS AGING SCHEDULES OF
c) Inspection costs of incoming materials.
INVENTORIES?
d) Cost of stationary, typing, postage,
telephone charges, etc.  Classification of inventories according to the
CARRYING COSTS / HOLDING COSTS period (age) of their holding.
 Helps in identifying slow moving
 Carrying cost is the amount that a business inventories thereby helping in effective
spends on holding inventory over a period of control and management of inventories.
time. It is the cost of owning, storing, and
keeping the items in stock.
 Cost for holding the inventories’
 These costs includes;
a) The cost of capital invested in inventories.
TABLE SHOWING AGING OF
INVENTORIES OF A FIRM
-GANTT CHART-
WHAT IS A GANTT CHART?
- A Gantt chart is a commonly used
graphical depiction of a project schedule. It's a type
of bar chart showing the start and finish dates of a
project's elements such as resources, planning, and
dependencies.
HENRY GANTT (FOUNDER)
 Henry Gantt (1861-1919), an American
mechanical engineer, designed the Gantt
chart.
 Most popular legacy to management was the
Gantt Chart. Accepted as a commonplace
project management tool today, it was an
innovation of worldwide importance in the
1920s.
UNDERSTANDING THE GANTT CHART
 The Gantt chart is the most widely used
chart in project management. These charts
are useful in planning a project and defining
the sequence of tasks that require
completion. In most instances, the chart is
displayed as a horizontal bar chart.
 Horizontal bars of different lengths
represent the project timeline, which can
include task sequences, duration, and the
start and end dates for each task. The
horizontal bar also shows how much of a
task requires completion.
GANTT CHART
- A Gantt chart helps in scheduling,
managing, and monitoring specific tasks and
resources in a project. The chart shows the project
timeline, which includes scheduled and completed
work over a period of time.
BENEFITS
- The Gantt chart aids project managers in
communicating project status and completion rate
of specific tasks within a project, and also helps
ensure the project remains on track. By convention,
it is a standard tool that makes communication
unified among the engineering and project
management community
BENEFITS OF GANTT CHART
- The chart identifies tasks that may be
executed in parallel and those that can't be started or
finished until others are complete.
- It can help detect potential bottlenecks and
identify tasks that may have been excluded from the
project timeline.
- The chart depicts things like task slack
time or additional time for completion of a task that
shouldn't delay the project; noncritical activities that
may be delayed; and critical activities that must be
executed on time.
- Gantt charts can be used in managing
projects of all sizes and types. These may include
building infrastructures like dams, bridges, and
highways. They may also include software
development and other technologies.
EXAMPLES OF GANTT CHART
 BOTTOM LINE
 A Gantt chart is a visual description of a
project's timeline. The chart shows the start
and end dates of a project's components,
such as resources and planning.
 If you are involved in a project, it is
recommended to use a Gantt chart to help
organize the various tasks within the project.

WHAT ARE GANTT CHART ARE USED

FOR?
 Gantt charts help visualize various tasks and
projects that occur simultaneously within an
organization, and how far along they have
progressed.
 They are used by management to plan and
schedule such projects so that resources can
be allocated in an optimal way and that
projects that are prioritized can finish before
less important ones begin.
COMPONENTS OF GANTT CHART
- A Gantt chart can vary in complexity and
depth, but will always have three key components:
 Activities or tasks that are to be done
 Running along the y-axis; milestones or
progress stages indicated along the x-axis
(either on the top or bottom of the chart);
 Progress bars, denoted as horizontal bars,
denoting how far along each task is at any
given point.