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Management

Module E –

Learning Curves

**PowerPoint presentation to accompany
**

Heizer/Render

Principles of Operations Management, 7e

Operations Management, 9e

© 2008 Prentice Hall, Inc. E–1

Outline

Learning Curves in Services and

Manufacturing

Applying the Learning Curve

Arithmetic Approach

Logarithmic Approach

Learning-Curve Coefficient Approach

Strategic Implications of Learning

Curves

Limitations of Learning Curves

© 2008 Prentice Hall, Inc. E–2

Compute learning curve effects with the logarithmic and learning-curve coefficient approaches 4. Describe the strategic implications of learning curves © 2008 Prentice Hall. Use the arithmetic concept to estimate times 3. E–3 . Learning Objectives When you complete this module you should be able to: 1. Define a learning curve 2. Inc.

E–4 . Learning Curves 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 © 2008 Prentice Hall. Inc.

1 © 2008 Prentice Hall. Learning Curve Effect Cost/time per repetition 0 Number of repetitions (volume) Figure E. E–5 . Inc.

7)2 = 4. Learning Curves T x Ln = Time required for the nth unit where T = unit cost or unit time of the first L = learning curve rate n = number of times T is doubled First unit takes 10 labor-hours 70% learning curve is present Fourth unit will require doubling twice — 1 to 2 to 4 Hours required for unit 4 = 10 x (.9 hours © 2008 Prentice Hall. Inc. E–6 .

Learning Curve Examples Learning- Curve Improving Cumulative Slope Example Parameters Parameter (%) Model -T Ford Price Units produced 86 production Aircraft Direct labor-hours Units produced 80 assembly per unit Equipment Average time to Number of 76 maintenance replace a group of replacements at GE parts Steel Production worker Units produced 79 production labor-hours per unit produced Table E. Inc.1 © 2008 Prentice Hall. E–7 .

E–8 .1 © 2008 Prentice Hall. Learning Curve Examples Learning- Curve Improving Cumulative Slope Example Parameters Parameter (%) Integrated Average price per Units 72 circuits unit produced Handheld Average factory Units 74 calculator selling price produced Disk memory Average price per Number of bits 76 drives bit Heart 1-year death rates Transplants 79 transplants completed Table E. Inc.

including costs and pricing © 2008 Prentice Hall. Uses of Learning Curves Internal: labor forecasting. scheduling. E–9 . establishing costs and budgets External: supply chain negotiations Strategic: evaluation of company and industry performance. Inc.

8 x 80) 8 51.8 x 64) 16 41.0 2 80.8 x 51. Inc.2) © 2008 Prentice Hall.8 x 100) 4 64. Arithmetic Approach Simplest approach Labor cost declines at a constant rate.0 = (. E – 10 .2 = (. the learning rate. as production doubles Nth Unit Produced Hours for Nth Unit 1 100.0 = (.0 = (.

E – 11 . TN . Logarithmic Approach Determine labor for any unit. by TN = T1(Nb) where TN = time for the Nth unit T1 = hours to produce the first unit b = (log of the learning rate)/ (log 2) = slope of the learning curve © 2008 Prentice Hall. Inc.

2 © 2008 Prentice Hall. by TN = T1(Nb) Learning where TN = time for the Rate Nth (%) unit b T1 = hours to70 produce the – .515 first unit 75 – . Inc. Logarithmic Approach Determine labor for any unit. E – 12 .234 curve 90 – . TN .415 b = (log of the learning rate)/(log 2) 80 – .152 Table E.322 = slope of 85 the learning – .

322) = 70. Inc. E – 13 . Logarithmic Example Learning rate = 80% First unit took 100 hours TN = T1(Nb) T3 = (100 hours)(3b) = (100)(3log .2 labor hours © 2008 Prentice Hall.8/log 2) = (100)(3–.

E – 14 .3 © 2008 Prentice Hall. Inc. Coefficient Approach TN = T1C where TN = number of labor- hours required to produce the Nth unit T1 = number of labor- hours required to produce the first unit C = learning-curve coefficient found in Table E.

773 2.530 9.932 .214 7.116 15 . E – 15 .850 1.000 1.700 1.345 5 .437 3.700 .850 3 .686 4.402 © 2008 Prentice Hall.583 7.000 1.623 4 .495 12.000 2 .568 2.031 10 .268 . Learning-Curve Coefficients Table E.274 .248 6.306 4.758 .3 70% 85% Unit Number (N) Unit Time Total Time Unit Time Total Time 1 1.000 1.723 3. Inc.861 20 .407 .195 .490 2.

615. E – 16 .345) = 418.125 hours for all four boats © 2008 Prentice Hall.000 TN = T1C T4 = (125.375 hours for the 4th boat 90.000 hours)(.000 hours Labor cost = $40/hour Learning factor = 85% TN = T1C T4 = (125. Inc. Coefficient Example First boat required 125.375 hours x $40/hour = $3.723) = 90.000 hours)(3.

Coefficient Example Third boat required 100. E – 17 .773 © 2008 Prentice Hall.000 = 129.366 hours .000 hours Learning factor = 85% New estimate for the first boat 100. Inc.

Strategic Implications To pursue a strategy of a steeper curve than the rest of the industry. Build on shared experience 4. Follow an aggressive pricing policy 2. Inc. E – 18 . Focus on continuing cost reduction and productivity improvement 3. Keep capacity ahead of demand © 2008 Prentice Hall. a firm can: 1.

2 Accumulated volume (log scale) © 2008 Prentice Hall. Inc. Industry and Company Learning Curves In C du om st ry pa pr Price per unit (log scale) ny ice co st (c) Loss (b ) Gross profit (a) margin Figure E. E – 19 .

Limitations 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 © 2008 Prentice Hall. Inc. E – 20 .

Inc. and changes in the process may alter the learning curve © 2008 Prentice Hall. 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. E – 21 . design. Limitations of Learning Curves Any changes in personnel. resource availability.

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