# Operations

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.